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Document ofThe International Finance Corporation
BIODIVERSITY AND AGRICULTURAL COMMODITIES PROGRAM (BACP)
Program Appraisal DocumentApril 12, 2007
Biodiversity and Nature-based MarketsEnvironment and Social Development Department
TABLE OF CONTENTS
TABLE OF CONTENTS...............................................................................................................i
ACRONYMS.................................................................................................................................iii
BIODIVERSITY AND AGRICULTURAL COMMODITIES PROGRAM...........................1
I. PROGRAM SUMMARY.............................................................................................................1A. Introduction...................................................................................................................1B. Program Rationale........................................................................................................2C. Status and Role of Private-sector-led, International, Multi-stakeholder Commodity Roundtables..............................................................................................................................5D. Background on Global Significance of Biodiversity Affected by BACP’s Target Commodities.............................................................................................................................8E. Background on Impacts of Production on Biodiversity, Better Management Practice Alternatives, and Barriers to Adoption..................................................................................13F. The IFC’s Role in Agricultural Commodity Markets..................................................18G. The IFC’s Experience with Market Transformation...................................................20H. Program Objective and Outcomes..............................................................................21I. Program Activities..........................................................................................................23J. Benefits to Partners.........................................................................................................29K. The BACP Project Cycle and Project Selection Criteria............................................31L. BACP Management.........................................................................................................37M. Monitoring and Evaluation.........................................................................................42N. Risk Analysis................................................................................................................44
II. COUNTRY OWNERSHIP AND PARTNER SELECTION...........................................................46A. Country Selection and Eligibility................................................................................46B. Country Endorsement..................................................................................................50C. Partner Selection.........................................................................................................50
III. PROGRAM & POLICY CONFORMITY.................................................................................51A. Program Design and Target Activities: role of the private sector..............................51B. Rationale for GEF Involvement..................................................................................53C. Sustainability...............................................................................................................55D. Replicability.................................................................................................................56E. Stakeholder Involvement.............................................................................................57
IV. FINANCING AND COST EFFECTIVENESS...........................................................................59A. Program Budget..........................................................................................................59B. Basis for Possible Second Phase of BACP..................................................................63C. Co-financing and Leverage.........................................................................................64
V. INSTITUTIONAL CO-ORDINATION & SUPPORT.................................................................67A. Core Commitments & Linkages..................................................................................67B. Consultation, Coordination and Collaboration between IAs.......................................69
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List of TablesTable 1: Summary of IFC Agribusiness Department's Investments in BACP's Target
Commodities...................................................................................................................19Table 2: BACP Risk Analysis.......................................................................................................45Table 3: Land Use, Production Volumes, and Annual Value of BACP's Target Commodities.. .51Table 4: Uses and Sources of Funds for Phases 1 and 2 of BACP (in US$)................................61Table 5: Detailed implementation Budget for BACP, Phase 1 (in US$)…..................................62
LIST OF FIGURESFigure 1: Overlap of Cocoa-growing Regions and Biodiversity Hotspots......................................3Figure 2: Oil palm plantation, A. Rival, © CIRAD.......................................................................12Figure 3: Cocoa Tree, P. Lachenaud, © CIRAD...........................................................................12Figure 4: Sugarcane Harvest, R Fauconnier, © CIRAD……........................................................12Figure 5: Soybean Plant, C. Lanaud, © CIRAD............................................................................12Figure 6: Graphic Depiction of the BACP's Market Transformation Goal…...............................22Figure 7: The BACP Project Cycle................................................................................................32Figure 8: BACP Organizational Structure.....................................................................................39Figure 9: Initial Gantt Chart for First Phase of the BACP….........................................................40
LIST OF ANNEXESAnnex 1: Overview of Selected Agricultural Commodity Markets (Palm Oil, Cocoa,
Sugarcane, and Soybean)Annex 2: Maps and Tables Related to Production and Export of BACP’s Target CommoditiesAnnex 3: Summary of Findings of Program Development, Including Selection Process for
Target CommoditiesAnnex 4: Key Documents from Palm Oil, Soy and Sugarcane RoundtablesAnnex 5: Definition of High Conservation ValuesAnnex 6: Portfolio of Sample BACP Projects Annex 7: Monitoring and Evaluation PlanAnnex 8: Logical FrameworkAnnex 9: Incremental Cost AnalysisAnnex 10: List of Letters of Intent on File with IFCAnnex 11: Environmental and Social Clearance MemorandumAnnex 12: STAP ReviewAnnex 13: GEF Tracking Tool for SP2Annex 14: Preliminary Market Transformation Strategy for Palm oilAnnex 15: Preliminary Market Transformation Strategy for CocoaAnnex 16: The IFC’s Sustainability Business Innovator Facility
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ACRONYMS
BACPBMPBSICAGCBD
Biodiversity and Agricultural Commodities ProgramBetter Management PracticeBetter Sugarcane InitiativeIFC Agribusiness DepartmentUN Convention on Biological Diversity
CEEF IFC/GEF Project Commercializing Energy-EfficiencyCFL Compact Fluorescent LampsCI Conservation InternationalEBFP Environmental Business Finance ProgramELI IFC/GEF Project Efficient Lighting InitiativeEMBRAPA Brazilian Corporation for Agricultural ResearchFI Financial IntermediaryFTE Full-Time EmployeeGAPKI Indonesian Palm Oil Producers AssociationGEF Global Environment FacilityHCVHEECP
High Conservation ValuesHungary Energy Efficiency Co-finance Program
IFC International Finance CorporationIUCN International Union for the Conservation of NatureIPM Integrated Pest Management MAMTI Marine Aquarium Market Transformation InitiativeMPOA Malaysian Palm Oil AssociationM&E Monitoring and EvaluationMoU Memorandum of UnderstandingNBSAPP&C
National Biodiversity Strategy and Action Plan Principles and Criteria
PELP Poland Efficient Lighting ProjectPENSA IFC’s Program for Eastern Indonesia SME AssistanceRA Rainforest AllianceRTRS Roundtable for Responsible SoyRSPO Roundtable on Sustainable Palm OilTA Technical AssistanceTATF Technical Assistance Trust FundsTNC The Nature ConservancyToR Terms of ReferenceUNDP United Nations Development ProgramWB World Bank (International Bank for Reconstruction and
Development)WCF World Cocoa FoundationWWF World-wide Fund for Nature (generically, not in a particular
country)
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BIODIVERSITY AND AGRICULTURAL COMMODITIES PROGRAM
I. PROGRAM SUMMARY
A. Introduction
Agriculture and biodiversity
1. Agriculture is the largest industry on the planet. It employs more than one billion people and generates more than one trillion dollars worth of goods annually. With its deep connections to the world economy, human societies, and biodiversity, agriculture poses some of the most important challenges for conservation of life on Earth.
2. The adoption of resource-intensive production methods, particularly for agricultural commodities, is exerting a substantial strain on the world’s biological diversity. As pointed out by GEF Operational Program 13 on the Conservation and Sustainable Use of Biological Diversity Important to Agriculture: “agricultural practices such as reliance on monoculture, exotic/cross breeds, high yielding varieties, mechanization, and misuse of agricultural chemicals have caused negative impacts on biological diversity at all levels - ecosystems, species and gene pools - on both natural and cultural landscapes, and may be unsustainable, at least in the long term.”
3. While agricultural operations, whether large or small, provide unique opportunities to conserve biodiversity, they also can threaten wild species and natural habitats when not managed sustainably. Negative biodiversity impacts from agriculture include:
4. Habitat Fragmentation and Loss. Expanding agricultural frontiers contribute to the rapid loss of forests, wetlands, grasslands and other habitats, their biodiversity, and their valuable ecosystem functions every year. Runoff from poorly managed farms degrades downstream freshwater and marine habitat and leads to bioaccumulation levels that adversely affect fertility and fecundity of species of a wide range of trophic levels.
5. Degradation of Water and Soil Resources. Globally, agriculture withdraws 70% of the planet’s developed freshwater resources—this is twice the industry (20%) and municipal use (10%) combined.1 Without creative conservation measures, farms can quickly consume a dry region’s water supplies, impacting specific species and critical habitats as well as biodiversity more generally. Where planting and production practices take insufficient account of soil ecology and fragility under conditions of high rainfall and steep terrain, there can be a wholesale loss of nutrients, structure, and diverse communities of soil organisms. Material that is washed away can damage downstream ecosystems (such as coral reefs) and economic infrastructure (such as dams). Half of all topsoil has been lost in agricultural areas as a result of unsustainable farming practices.
6. Pollution. Insecticides, herbicides fungicides, fertilizers, and other farm chemicals can contaminate soil, water, and air, and can remain in the environment for generations. Their broad-
1 Jason Clay, World Agriculture and the Environment, Washington, Island Press 2004.
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spectrum toxicity can destroy whole communities of organisms. Agriculture is the leading cause of pollution in countries that measure its impact. Many pesticides disrupt the hormone messaging systems of both humans and wildlife.
7. Poverty. Three quarters of the world’s poorest people live in rural areas where farming is the only option available to generate income, fight poverty and achieve food security. Small farmers the world over are found in high biodiversity areas that often are the least fertile areas for sustainable production. Once depleted of nutrients, such areas are often abandoned, leading to the colonization of new areas. The result is a cycle of increasing poverty and biodiversity loss.
BACP Objective: mainstreaming biodiversity preservation opportunities throughout the value chain
8. The proposed Biodiversity and Agricultural Commodities Program (BACP) seeks to reduce, in an innovative and large-scale manner, the threats posed by agriculture to biodiversity of global significance. The primary objective of the BACP is to preserve global genetic, species and ecosystem diversity within agricultural production landscapes, by transforming markets for targeted agricultural commodities. The Program will integrate biodiversity into the production landscape, by moving sustainably-produced commodities from niche markets into the mainstream.
B. Program Rationale
Protecting biodiversity of global importance
9. The BACP will target commodities whose production threatens biodiversity of global significance, and which offer the potential for using market forces to reduce these threats. A careful selection process (see Annex 3) identified palm oil as a priority commodity in which to work, and cocoa, soybean and sugarcane as “next in line” for the BACP’s focus. The order between the latter three commodities will depend on progress of the related multi-stakeholder initiatives. The BACP’s initial selection of target countries for each commodity takes into account production volumes, the impact of this production on biodiversity of global significance, and the potential for reducing this impact. The initial target countries are Indonesia (palm oil, cocoa), Malaysia (palm oil), Ghana and Côte d'Ivoire (cocoa, palm oil), and Brazil (sugarcane, soybeans, cocoa and palm oil). During the Program’s ten-year lifetime, additional countries may be added as warranted, even in Phase 1.
10. Each of these countries contains high levels of biological diversity and/or endemism, some of which is in biodiversity hotspots that overlap with areas of commodity production. In Brazil’s Cerrado, a woodland savanna hotspot, the production and expansion of sugarcane and soybean is exerting tremendous pressure on the ecosystem, resulting in the fragmentation, degradation, and disappearance of habitat. The lowland Guinean forest in Ghana and Côte d'Ivoire is a prime cocoa-growing region. As productive cocoa farms become exhausted, farmers move into forested areas. In Indonesia and Malaysia, palm oil production and expansion are a concern for the Sundaland hotspot (Borneo, Sumatra, Java, and Bali). A cocoa farming boom on Sulawesi threatens wildlife in the Wallacea hotspot. The overlap between cocoa growing regions and biodiversity hotspots is clearly demonstrated in Figure 1 below:
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Figure 1: Overlap of Cocoa-growing Regions and Biodiversity Hotspots2
Better Management Practices can reduce the impacts of agriculture on biodiversity of global significance, but they face barriers to adoption
11. So-called Better Management Practices (BMPs) can significantly limit the biodiversity threats posed by production.3 BMPs encompass a broad range of environmental, social, and labor practices that allow companies to optimize resource use efficiency, create marketable by-products, reduce waste, encourage employee loyalty, secure market access and the reduced risk of adverse relations with local stakeholders. They are largely market-driven and work best in situations where business and investors have medium- or long-term horizons. Currently, certain barriers prevent the widespread uptake of BMPs. The BACP will work with industry players in each target commodity market in order to mainstream the adoption of biodiversity-friendly and economic BMPs throughout the value chain.
2 Source: What Happens when Disease Takes Out a Key Export Crop? Bahia in 1990s, presentation by Keith Alger (Conservation International) at the NAS Cocoa Symposium, 8-9 February 20063 It is sometimes asked why the term “Best” Management Practices is not used. The term “Better” reflects the fact that there are no “Best” practices, because through continuous improvement, today’s best becomes tomorrow’s norm.
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Opportunities for leverage through organized markets and industry roundtable processes
12. For three of the BACP’s four target commodities, an international multi-stakeholder industry-led roundtable is actively working to lessen the commodity’s impact on the environment and to address social issues. These roundtables (in palm oil, sugarcane, and soybean) and their members will be key partners for the BACP. They provide an entry point for BACP into industry decisions on environmental performance targets, principles, and criteria, and provide a collaborative environment for developing joint projects. The roundtables, which explicitly include members drawn from smallholders and from social NGOs, will also allow BACP to understand and, where possible, respond to the needs of the rural poor who, as smallholders or as employees, help produce the program’s target commodities. For cocoa, although there is currently no roundtable process, one is being contemplated by some large manufacturers, and the BACP can also build upon existing industry fora and on relatively large market segments.
13. Commodity markets are organized and therefore relatively easy to work in (See Annex 1 for an overview of the markets for BACP’s selected commodities). The concentration of industry in these commodities means that a relatively small number of players up the value chain (traders and buyers) have a relatively strong influence on demand, and thus on production. Globalization and consumer scrutiny have pushed companies to provide, and consequently to demand, more transparency with regard to their products as well as the ingredients they use. This trend towards accountability for both product quality and production practices has enabled larger companies to influence the entire market chain, including segments of it in which they do not directly invest. Although the extent of this phenomenon varies from one product or market to another, the intrinsic characteristics of a product are no longer enough to satisfy a number of consumers, especially in industrialized countries. They want to know that their purchases have not been produced or traded at the expenses of people or nature.
BACP Structure and Approach: a market-based approach to biodiversity conservation
14. The rationale for the BACP can be summarized as follows:a. Production areas for oil palm, cocoa, sugarcane and soybeans overlap with areas of
globally significant biodiversity;b. BMPs can reduce the impacts of production on biodiversity, but face certain barriers to
adoption; andc. Commodity roundtables and the overall market structure provide an opportunity for the
GEF to make an incremental investment to jump-start and support market transformation efforts that lead to the mainstreaming of biodiversity protection opportunities into commodity markets.
15. Central to this rationale is the premise that there is great potential for working with the private sector, as highly organized players in a given market, to transform agricultural commodity markets so that biodiversity-enhancing, commercially-sustainable production methods with beneficial impacts on poverty are adopted across large areas of the production landscape, on a globally significant scale. The BACP will take a holistic approach to this market transformation, using its resources to mainstream the supply of, demand for, and financing to commodities produced using biodiversity-friendly methods. As a result of the program, “better commodities” should account for a substantial percentage of sales (at least 10% by volume) in
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each target commodity market. The Program’s structure reflects this rationale. Each component of the Program addresses a specific group of market actors including the supply-side (producers and primary processors such as millers), the demand-side (traders and buyers), the financiers, and the wider enabling environment (government and industry roundtables). Each group has a role to play in creating and maintaining a healthy market for biodiversity-friendly products. By addressing each of these parts of the value chain, the BACP can have a sustainable and long-term impact on the market for biodiversity-friendly commodities.
16. The BACP will promote changes in production methods that are both biodiversity-enhancing and otherwise sustainable in the long term. The IFC has selected commodities for which the private sector has already demonstrated leadership potential. The Roundtable on Sustainable Palm Oil (RSPO) has prepared and approved (by an overwhelming majority, in November 2005) a set of environmental and social principles and criteria. In November 2006, it had nearly 150 members and approved a Code of Conduct (see Annex 4). Similar roundtables are getting underway for soybeans and sugarcane. Major off-takers in the cocoa industry understand the need for a supply of cocoa that is sustainably produced, and a cocoa roundtable is currently being discussed by certain major buyers. Yet for all four target commodities, the market is not yet delivering large-scale quantities of sustainable supply, because of the barriers mentioned above. The BACP represents an incremental investment that will allow consideration and adoption, at all levels of the value chain, of biodiversity-enhancing opportunities.
C. Status and Role of Private-sector-led, International, Multi-stakeholder Commodity Roundtables
17. International, multi-stakeholder, industry-led commodity roundtables are powerful partners for the BACP. The roundtables bring together a critical mass of stakeholders in a given commodity to meet, several times a year, in an organized and transparent forum. Members work towards defining and implementing private-sector-based voluntary codes of conduct relating to social and environmental practices, and commit to adhering to that code.4 Through the IFC/WWF BMP Initiative, the IFC has supported these structures since their inception.
18. Working within existing industry structures will greatly enhance the BACP’s ability to bring about sustainable market transformation. The roundtables in palm oil, sugarcane and soybeans, and other industry fora with which the BACP will engage, will allow the Program to (a) contribute to the choice of Principles and Criteria, to the definition of indicators and verifiers, and to define and document metrics; (b) tap into (and contribute to) the most current information on BMPs; (c) have direct and credible introductions to market leaders; (d) source opportunities for BACP project-level and value-chain initiatives by identifying specific trends of concern and production methods and/or regions where market failures prevent successful implementation of BMPs, (e) disseminate lessons learned from the BACP’s project level and value-chain activities and promote replication; and (f) to build and document the link between verification or certification systems and actual impact on the ground. 5
4 These voluntary codes of conduct, enshrined in Principles and Criteria accepted by the roundtable members, may or may not lead to full certification but can be audited against if needed.5 It is interesting to note that there are synergies among the stakeholders involved in the four commodities. Some NGOs are active in more than one of target commodities (ex: WWF) and some multinational firms are off-takers of several target commodities (e.g. Cadbury-Schweppes plc is involved in for a for cocoa, sugarcane, and palm oil; Unilever is involved in roundtables around soybean, sugarcane and palm oil). This allows for cross-pollination of ideas that strengthens both the roundtables and BACP.
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19. Roundtable processes are at different stages of dialogue, with the Roundtable for Sustainable Palm Oil (RSPO) being the farthest along. RSPO has been in existence since 2003. It has nearly 150 members, including major industry players from throughout the value chain as well as financial institutions and environmental and social NGOs. It has an annual meeting, an executive board, voting members in a general assembly, and a secretariat with several offices. It is itself an NGO, headquartered in Zurich, Switzerland, with its main office in Malaysia. It is estimated that RSPO members produce one-third of the world’s palm oil. The RSPO (and its sibling roundtables in other commodities) is therefore not a niche market phenomenon. On the contrary, the roundtables are putting in place mainstream, mass-market sustainability practices and targeting optimal performance levels that such-mass market can absorb.
20. Over the past two years, the RSPO established a Criteria Working Group to draft Environmental and Social Principles and Criteria that were approved by the full RSPO membership in November 2005. Nearly 40 criteria are included in this work (see Annex 4). The RSPO is developing a guidance document showing ways that producers can implement the Principles and Criteria. The ongoing phase of the work of the RSPO is to field test the Principles and Criteria in different areas and scales of production. This work started in 2006 and its results were presented to the fourth RSPO meeting in November 2006. Among other interesting results, it was clearly shown that the Principles and Criteria related to biodiversity were more difficult for members to assess, and that this required further specific work.
21. Because the RSPO was one of the first roundtables/dialogues, it was initially more focused on prescriptive approaches to reducing impacts than on market-based performance- and metric-based approaches. This changed as the roundtable process evolved and as all stakeholders (including IFC) voiced their preferences. The BACP will be instrumental in helping identify meaningful, measurable indicators of biodiversity and habitat at both the farm and landscape levels. A first step has already taken place in November 2006: the RSPO Third General Assembly approved a motion put forward by IFC for the establishment of a Technical Committee on Biodiversity. The Committee will be a place where members can discuss and address the challenges of implementation of the biodiversity-related Principles and Criteria, and, among other things, work on developing biodiversity indicators and verifiers. The BACP will also play a role in helping adapt the RSPO outputs to different producing regions.
22. A group of initial members of the Better Sugarcane Initiative6 first met in 2005. Its multi-stakeholder membership includes producers and millers from four continents as well as traders, buyers, manufacturers, brands, investors, researchers, and NGOs. Given the increasing importance of sugarcane in renewable energy (burning of bagasse) and the production of ethanol, interested energy companies also attended the January 2007 meeting of the BSI.
23. The BSI has held three meetings and formed a steering committee. Technical working groups are being created to develop indicators and verifiers for the 8 to 10 most significant environmental and social impacts of sugarcane production globally, both on and off the farm and at the mill level (see Annex 4 for a list of these impacts). The BSI aims to have indicators and verifiers drafted and vetted by 2007, so as to conduct field testing in 2007 and 2008. Through its South African Technical Assistance Trust Funds, the IFC is implementing a review of BMPs within the sugar industry for the BSI. The BSI hopes to have Better Sugar, Energy and Ethanol 6 The choice of the word “sugarcane” rather than “sugar” reflects the focus on sugarcane (rather than sugar beet or other sources of sugar), and also reflects the roundtable’s relevance to all uses of sugarcane, including sugar, but also biofuels, biomass-based cogeneration, paper pulp, etc
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on the market by 2008, with significant product flows by 2010 (with 25% - 50% of purchases going to Better supplies); in order to meet these goals, the BSI will need to increase its membership, and a membership drive is planned for 2007. 24. The Roundtable on Responsible Soy (RTRS) was created in 2004 and held its first meeting in 2005 in Brazil. This meeting brought together some 300 individuals and organizations, but did not achieve consensus on environmental impacts or on what could be done to improve them. A group of institutions that were present (including the IFC) proposed that another meeting be held where social and environmental experts would present key impacts and actions to reduce them, and key areas where more information is needed. This meeting occurred in April 2006 in Sao Paulo, and was partly funded by IFC. The second Roundtable meeting, which took place in Paraguay in August 2006, achieved agreement and broad consensus on nine key social and environmental impacts of soy production (one of which is habitat loss), and created draft principles for the responsible production of soy (see Annex 4). In November 2006, IFC was an observer at the meeting in which RTRS was formally founded as an organization; and subsequently participated in a donors meeting to discuss future financing of the RTRS. Other participants included the Swiss Economic Cooperation Organization, GTZ, representatives from the Netherlands foreign ministry, and WWF.
25. The next steps for RTRS include putting in place a Criteria Development Group to define and field test, through pilot projects, criteria for better soy production, indicators, and verification systems to be developed over the next two years. The Group will establish a consultation process on draft principles, criteria, and indicators with wider groups of stakeholders, including small farmers.
26. Several cocoa industry groups address social and environmental issues but as yet no structured roundtable process exists similar to the previous three commodities. It is worth noting that in February 2005, some of the main players in the cocoa industry suggested the creation of a Better Cocoa Roundtable that would begin in 2006. WWF still plans to explore the possibilities of establishing a cocoa roundtable, but the concept still encounters some resistance.
27. Currently, the most prominent industry organization working on sustainable cocoa is the World Cocoa Foundation (WCF). The WCF membership includes about 60 companies and industry associations. The WCF operates a Sustainable Cocoa Program with a goal to “elucidate the fundamental ecological mechanisms that support the sustainable cultivation of cocoa, identify and verify on-farm biodiversity benefits of sustainable cocoa agriculture, and develop sustainable cocoa agriculture models that contribute to the sustainability of tropical forest ecosystems.” Individual companies are also taking important initiatives on research and implementation of sustainable cocoa production.
28. The relationship between the BACP and the roundtables is symbiotic. The BACP can help fund incremental roundtable activities that address biodiversity of global importance while the roundtables allow the BACP to efficiently stay abreast of the main issues in a commodity market, build contacts with the main players, and solicit potential projects. The BACP funding can support the roundtables in the following ways:
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a. Provide a portion of core support to ensure that biodiversity issues are fully considered by the roundtables;
b. Through the Technical Working Groups (TWGs), help identify measurable indicators for biodiversity and habitat both at the landscape and farm levels;
c. Through the TWGs, help to identify areas where information gaps exist or where information needs to be centralized from disparate sources;
d. Support research to gather necessary information regarding indicators or verification systems;
e. Help identify and vet global verification systems for each indicator;f. Support the field-testing of the proposed verification systems; andg. Support efforts to understand the limitations or strengths of global verification systems.
D. Background on Global Significance of Biodiversity Affected by BACP’s Target Commodities
Global significance of biodiversity affected by BACP’s target commodities
29. The production of the BACP’s target commodities currently has a negative impact on biodiversity of global significance. As already mentioned, the BACP’s target countries all have biodiversity hotspots that overlap with areas of production for the BACP’s target commodities (see Annex 2 for maps of major hotspots and major production countries for each of the selected commodities). This section discusses the global biodiversity significance of the BACP’s target countries in more detail.
30. Indonesia. Indonesia is considered by Conservation International to be one of the twelve mega diverse countries, largely due to the presence of two biodiversity hotspots: Wallacea7 and Sundaland.8 Indonesia ranks first in the world for the number of mammal, palm, and parrot species.9 Almost 1,600 Indonesian species figure in the International Union for the Conservation of Nature’s (IUCN) Red List of endangered species, and for 247 of them agriculture is clearly identified as the major threat. Because of Indonesia’s geographical situation, there is a high level of species endemism including such species as the orangutan, the babirusa, the bird-wing butterfly, the Sumatran Tiger, and two species of rhinoceros. Their insularity increases their vulnerability to extinction. Today, most Indonesian mega fauna are considered endangered. The biggest threat to Indonesian biodiversity is deforestation through logging, fires, and agricultural conversion.10 At today’s deforestation rate (more than 2 million ha/year in 2004) lowland forests may soon disappear. Forests fragmentation is also a major issue for biodiversity.
31. Oil palm cultivation is also identified as a major agricultural threat to Indonesian biodiversity. The main environmental problems from oil palm production are habitat conversion, threats to critical habitat for endangered species, and pollution from processing wastes. Habitat conversion has a devastating impact not only on the tropical forests (which have more tree species per hectare than any other forests studied to date) but also on other plant and animal species. Oil palm poses the most significant threat to the widest range of endangered mega fauna
7 Central islands of Indonesia east of Java, Bali, and Borneo, and west of the province of New Guinea, and the whole of Timor Leste. 8 Sundaland is an indo-Malayan archipelago, an arc of some 17,000 equatorial islands, and is dominated by two of the largest islands in the world: Borneo (725,000 km²) and Sumatra (427,300 km²), see: http://www.biodiversityhotspots.org/xp/Hotspots/9 Third National Report at the Convention on Biological Diversity http://www.biodiv.org/doc/world/id/id-nr-03-en.pdf10 Clay, op. cit.
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of any agricultural crop. Species that are affected directly include the Asian elephant, the Sumatran rhinoceros and tigers, and orangutans. Conversion of natural forest to oil palm has emerged as the major threat to orangutan populations and habitats particularly for major populations in lowlands with dryland diversity, and in swamp and/or peat forests. The mammal species density in oil palm plantations is less than one seventh of their density in primary forests.11
32. Malaysia. Malaysia is also considered by Conservation International as one of the twelve mega diverse countries. It lies within the biodiversity hotspot of Sundaland.12 Malaysia hosts 1,046 species from the IUCN Red List of endangered species. For 157 of these, agriculture is identified as a major threat. Malaysia’s peninsular and insular geographical situation has led to a high level of endemism, including 27 mammal species13 (such as the Javan and the Sumatran rhinoceroses, the black shrew, the tiger and the otter civet). The country has more endangered plant species than any other country in the world.14 Some expert studies estimate that by 2020 almost half of all mammals and a quarter of all birds in Malaysia will face extinction. 15 Their insularity increases their vulnerability to extinction.
33. The third report of the Malaysian government to the UN Convention on Biological Diversity (CBD)16 clearly identifies land conversion as the main cause of biodiversity loss in peninsular Malaysia. Malaysia’s land use policy is “use oriented” and is designed for maximum utilisation and development.17 From 1970 to 1992, Malaysia’s natural forest was reduced by 19.3%, mainly through agricultural land conversion. Expansion of oil palm plantations is one of the major reasons for forest conversion. In 2002, plantations already covered a surface area of 2.9 million hectares.18
34. The main environmental impacts related to oil palm production are habitat conversion, threats to critical habitat for endangered species, and pollution from processing waste. While oil palm plantations can provide habitat for some species, it has been documented that the diversity of mammal species in plantations is significantly lower than in primary forests. For example, one study found that in Malaysia’s primary forests, there were 80 mammal species, while there were just over 30 in disturbed forests, and only 11 or 12 species in oil palm plantations.19
35. Ghana and Côte d'Ivoire. Both Ghana and Côte d’Ivoire are part of the Guinean Forests of West Africa, a biodiversity hotspot which is one of the most critically fragmented biodiversity habitats on earth. The Guinean Forest hosts 31 endemic threatened bird species, 35 endemic threatened mammals and 49 threatened amphibians. The lowland forests of West Africa are
11 There are nearly eighty mammal species found in Malaysia’s primary forests, just over thirty in disturbed forests, and only eleven or twelve in oil palm plantations. Source: Wakker, Eric. 1998. Lipsticks from the rainforest. WWF Germany.12 http://www.biodiversityhotspots.org/xp/Hotspots/ 13 http://www.animalinfo.org/country/malaysia.htm 14 http://www.arbec.com.my/endangered%20plants.htm 15 Chiew and Yoga, Nature Plundered, The Star Online, http://web.archive.org/web/20020211171230/thestar.com.my /lifestyle/story.asp?file=/2002/1/1/features/biof&sec=features16 Malaysian Ministry of Natural Resources and Environment: third report to the Convention on Biodiversity, http://www.biodiv.org/doc/world/my/my-nr-03-en.pdf 17 www.frim.gov.my 18 Clay, op. cit.19 Wakker, op. cit.
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home to over one quarter of Africa’s mammals, including more than 20 species of primates. Flagship species include the Jentink’s duiker, the pygmy hippopotamus, and scattered populations of western chimpanzees. Five Endemic Bird Areas lie partly or entirely within the hotspot.
36. Deforestation from logging and slash-and-burn agriculture are still prevalent throughout the region. Only 15% of its original forest cover remains. Logging, mining, hunting and human population growth are placing extreme stress on the remaining habitat areas. Within the last 10 years, more than 2.3 million hectares of forest area in Côte d’Ivoire and Ghana have been deforested.
37. Cocoa production areas are particularly relevant to globally significant biodiversity since they are located at the frontier of remaining forest habitat. The correlation between destruction of forest habitat and the extension of areas for cocoa plantation in southern Côte d’Ivoire are clearly documented and acknowledged by the government.20 Depending on where and how it takes place, cocoa expansion in the next decades could lead to further deforestation of millions of hectares of tropical forests, particularly if better management practices (such as shade grown or, yield increases) are not applied. Plantations (and farmers) in Ghana are aging, resulting in lower yields. If cocoa prices remain attractive, the major production regions are expected to move westwards where a younger generation of farmers is likely to clear remaining forest to plant cocoa.
38. Moreover, cocoa plantation systems that employ few or no shade techniques are prevalent in Côte d’Ivoire and Ghana as this seems to become the preferred productive system by farmers. They represent 28% and over 40% of all plantations, respectively. This will result in even stronger pressure on habitats and the surrounding watersheds 21, especially if countries or local governments in which this occurs are not managing land and resources in a way to preserve sufficient ecological corridors.
39. Brazil. Among the 17 mega diverse countries, Brazil is considered the country with the largest biological diversity. With an estimated 15 to 20% of all world biological diversity it is considered as having the largest number of endemic species in the world.
40. The Cerrado region and the Atlantic Forest rim are recognized as biodiversity hotspots for their globally significant biodiversity. They are the two Brazilian biomes that suffer the strongest human pressure, through both urban and agricultural expansion (this includes clearing for sugarcane and soybean production). The Cerrado, which covers 21% of the country, is the most extensive woodland-savanna in South America. It supports a unique array of drought-and fire-adapted plant species, and many endemic bird species. Large mammals such as the giant anteater, the giant armadillo, the jaguar and the manned wolf also still survive here, but are competing with the rapid expansion of Brazil's agricultural frontier, (primarily soybean and corn crops).
41. The Amazon biome remains the largest standing contiguous tropical rain forest in the world. It harbors nearly one-third of the world’s species and contains nearly one-quarter of the earth’s
20 Côte d’Ivoire, National report on Biodiversity to CBD, 16 November 200521 Gockowski et al., unpublished.
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fresh water. The western Amazon has been designated as a biodiversity "hot spot" because it combines floral diversity and endemism with high threats. It is recognized by the conservation community that a significant part of the biodiversity in the entire Amazon region is still unknown. With more than 5 million square kilometers and 23 million inhabitants, the area legally considered as the Amazon in Brazil (Amazonia Legal), concerns nine different States and represents about 60% of the Brazilian territory. Despite a large network of protected areas and indigenous lands, which the government plans to expand, the Amazon is continuously threatened by deforestation, which is driven by a complex set of forces including accelerated economic development, lack of enforcement of land use regulations and unclear land tenure. The main drivers of deforestation are agricultural expansion (including soy and sugarcane) and ranching, logging, mining, and settlements.
42. The Atlantic Forest of tropical South America hosts 20,000 plant species, 40% of which are endemic. Yet, less than 10% of the original forest remains. More than two dozen Critically Endangered vertebrate species are threatened in the region, including three species of lion tamarins and six bird species. With almost 950 kinds of birds living in the hotspots, there are many unique species, including the red-billed curassow, the Brazilian merganser, and numerous threatened parrot species. Small mammals in particular are endangered by habitat fragmentation and destruction.
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Figure 2: Oil Palm Plantation, A. Rival, © CIRAD.
Figure 3: Cocoa Tree, P. Lachenaud, © CIRAD
Figure 4: Sugarcane Harvest, R Fauconnier, © CIRAD
Figure 5: Soybean Plant, C. Lanaud, © CIRAD.
E. Background on Impacts of Production on Biodiversity, Better Management Practice Alternatives, and Barriers to Adoption
The negative impact of production on biodiversity 43. Land conversion. Conversion of natural or reforested habitat to cropland is one of the major biodiversity impacts of any cultivation system. The impact is pervasive and long-term. Over the past 200 years, sugarcane may have been responsible for the destruction of more globally significant biodiversity that any other single crop. It has replaced natural habitat in many tropical islands that could have had unique endemic populations due to their geographical isolation. Land use issues still arise today with all four target commodities. For example, high-conservation-value forests (HCVFs) are being converted to oil palm plantations.22 (See Annex 5 for further details on High Conservation Values). The president of Côte d'Ivoire, Laurent Gbagbo, has said “Le cacao mange la forêt” (cocoa is eating away at the forest).23 Land use can have ripple effects as well. Because soybean is such an extensive crop (it requires more land to produce the same yield as other crops), production also requires extensive infrastructure. This infrastructure leads directly and indirectly to habitat conversion. Finally, while agricultural expansion into natural habitats can bring new jobs, it can also undermine the livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation.
44. Soil erosion and exhaustion. Soil generally contains more biodiversity than the land above it-soil biodiversity quite literally supports the flora and fauna that live above it. Certain soybean and oil palm production practices are likely to lead to serious levels of erosion. On oil palm plantations the clearing and planting of riparian areas, and slopes greater than 15 degrees can cause erosion that is as much as 30 times greater than in natural forests. Suspended solids can be the largest threat to sea-grass beds, mangroves, and coral reefs. Because soybean is a short, shallow-rooted plant with little biomass its fields can suffer more soil erosion than other crops, particularly if the soil is loose and the land slopes. Without well-defined technical criteria, soybean cultivation could render the soil in many parts of the Amazon unusable. Even if abandoned, such exhausted soils will not support biodiversity levels at even a small fraction of what they once were.
45. Input use. When used improperly, pesticides, herbicides and fungicides contaminate the soil and leach into ground and surface water. Furthermore, the dumping of nutrient-rich mill and processing effluents into rivers has caused major fish kills and the excessive growth of alien vegetation (such as water hyacinth) all over the tropical world. Mill and processing effluents and nitrogen-based fertilizers are a chief source of excess nitrogen in terrestrial and aquatic ecosystems. Their presence causes eutrophication, hypoxia/anoxia and ecosystem death. It also threatens fisheries and biodiversity, alters food webs and simplifies ecological energy flows. Nitrogen deposition was adopted as a key global indicator of biodiversity loss by the CBD in 2004.
22 High Conservation Values (HCV) in a forest or an agricultural landscape are defined on the basis of a credible and agreed upon standard, and their presence or absence is determined on the basis of whether a set of pre-defined criteria are met. One of the most widely used sources for defining HCVs and their associated criteria is the “HCVF Tool Kit” developed by ProForest, a standard compatible with the Principles & Criteria adopted by RSPO. The HCV criteria proposed by ProForest include criteria directly related to globally significant biodiversity, such as, for example, criteria HCV1: “Forest areas contains globally, regionally or nationally significant concentrations of biodiversity values (e.g. endemism, endangered species, refugia). See Annex 5 for more detail. 23 See for example http://www.atibt.com/pdf/lettre_20.pdf.
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46. Water use. Water withdrawn for agriculture results in less water available for the biodiversity rich habitats in the surrounding watershed. Sugarcane in particular is noted for its high water consumption. Sugarcane requires 1-1.5 m3 of water per m2, which is about twice as much as soybeans. Full-sun cocoa plantation systems also have a much higher evaporation rate than shade-grown plantations or original forest habitat. Where evaporation rates are high relative to rainfall, irrigation can also cause salt contamination of surface soils.
Better management practices at the producer level
47. Just as the production of the BACP’s target commodities have similar impacts on biodiversity, the principal means of reducing these impacts is similar across the four commodities (in fact, these approaches can be applied to agricultural production in general).
48. Land use planning and zoning. Areas of exceptional biodiversity or those which are critical for endangered species can be protected through land-use planning and zoning. But setting aside isolated preserves will not allow sufficient gene flow between isolated populations. Biodiversity conservation and maintenance of ecosystem functions need to be addressed on a landscape level and on individual plantations (particularly the larger ones). Fortunately, many of the areas that are required to maintain biodiversity and wildlife corridors are also areas that are marginally productive. For palm oil, sugarcane or soybeans, riparian and slope areas generally cost more to farm than they return in benefits. Enlightened producers are beginning to understand that by simply abandoning their more marginal lands, their overall efficiency and per-hectare production increases. This leads to a decrease in inputs and associated environmental impacts, and higher net profits.
49. Planting on degraded lands. Planting on degraded agricultural or pasture land involves less labor, machinery, pesticides, and clearing than planting in natural habitat. Areas that have already been degraded by repeated logging and fire, for example, are abundant in tropical countries and are arguably more expendable from a conservation point of view than other, less disturbed, ecosystems. Because they can be cheaper to acquire, and easier and cheaper to plant than natural areas this practice would relieve some of the pressure on natural habitats. Given that Indonesia has 20 million hectares of degraded land, a vast amount of oil palm could be planted on this land with no loss of natural habitat. Brazil has more degraded and abandoned land that can be reused by agriculture than it currently has in production. This would take considerable pressure off conversion. Since the most important impact of cocoa on globally significant biodiversity is the conversion of primary forests for production, the location of future cocoa expansion is a critical issue. Ghana and Côte d'Ivoire both have abandoned agricultural land (fallow land or, land abandoned after illegal logging) which in some cases is suitable for replanting with cocoa. Its use could mitigate land conversion.
50. Maintain soil fertility. Many practices reduce soil erosion and the need for chemical inputs. Such practices include careful siting of plantings and infrastructure, the elimination of burning, abandoning riparian areas and areas of 12 to 15 degree slopes, terracing, using contour winnowing of cleared matter, establishing cover crops (particularly legumes), and building and maintaining organic matter.
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51. Reduced use of inputs. Integrated Pest Management (IPM), precision application methods, spot applications as needed and the elimination of prophylactic use of agrochemicals are all ways to reduce inputs use. These methods tend to be cheaper for the farmer than conventional use of agricultural inputs. The resulting reduced nitrogen run-off may be expected to contribute to the decline of eutrophication, anoxia and dead zones in marine environments.
52. Composting. Using mill effluents as fertilizers instead of dumping them into waterways can reduce input use for soybeans, sugarcane, and oil palm. This practice can increase soil’s organic matter, which binds other pollutants to the soil and results in reduced effluent outflow. Cocoa processing residues can be put to good use by composting pod husks or by making horticulture pellets with dried husks and shells.
53. Reduction in water use. Plantations should be irrigated efficiently. For example, in nurseries for palm oil seedlings, drip or perforated tube irrigation systems are preferable to sprinklers. The use of water in sugarcane or palm oil processing mills can also be minimized by recycling, reusing and concentrating effluents.
Better management practices: the importance of demand-side support
54. It is important that the demand for “better” commodities (i.e., commodities produced according to sustainable, thus biodiversity-friendly practices) matches and stimulates the production of such commodities. If this does not occur there is a risk of a market ‘glut’ of Better commodities, which would create a disincentive to producers. However, through the roundtable processes the BACP can ensure that commodities produced using BMP remain marketable.
55. Quality assurance, verification or certification systems are systems that allow the buyer to trust that the product purchased meets clearly established standards. The use of duly and regularly audited BMPs will be part of such systems.24 These are in the process of being defined or refined by commodity roundtables or industry groups. Because they allow purchasers throughout the value chain - traders, processors, consumers - to identify products that meet these characteristics, certification and verification schemes support the demand for Better commodities.
56. The Roundtable on Sustainable Palm Oil (RSPO) has brought together a wide range of stakeholders to agree on the key impacts of palm oil production and on the BMPs that reduce those key impacts to acceptable levels. This work resulted in an agreement on the key principles and criteria for sustainable palm oil at the November 2005 General Assembly, and approval of a code of conduct to comply with the latter, in November 2006 (see Annex 4). The RSPO focus has now shifted to field-testing and the preparation of guidance documents to provide information on BMPs that can be used to reduce critical impacts. Roundtables for soybean and sugarcane are also progressing towards this goal (see Section C). In cocoa, a number of existing certification and labeling schemes include biodiversity criteria (e.g., Rainforest Alliance certification).
Better management practices: the role of finance24 BMPs are context-dependent and may vary according to landscape characteristics (including presence of High Conservation Values), social imperatives, and the scale of the farm being considered. This a range of different BMPs can be tools for complying with the Principles and Criteria established by the Roundtables.
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57. Financial institutions provide the funding for agricultural production, including the expansion of production areas or the purchase of inputs. There is currently interest among leading players in agricultural financing to incorporate biodiversity considerations into investment screens.
58. Palm oil investors are now considering how they can use the RSPO principles and criteria to develop screens to ensure that their investments encourage more sustainable production. By focusing on key biodiversity impacts and by ensuring that the associated practices actually break even or bring financial benefits, such investors can be assured that they will not threaten the financial viability of producers. In addition, investors can reduce the risk of their reputation being damaged from involvement with companies that might be accused of unsustainable production.
59. These practices are farther along in their development for palm oil than for other commodities. But some of the financial institutions active in palm oil (e.g., Rabobank, HSBC, IFC) are also active in markets for the BACP’s other target commodities and are interested in applying the lessons learned from palm oil to other commodities.
Barriers to the adoption of Better Management Practices
60. “Win-win” changes to production methods in the agricultural commodities sector have had great difficulty gaining ground due to a number of factors, including:
61. BMPs are not “off the shelf”. Better Management Practices to comply with Principles and Criteria agreed in Roundtables may be considerably different from one country to another, or even one farm to another, but they all still need to be clearly defined and then field-tested so that their associated economic and biodiversity impacts can be clearly assessed and so the practices can be tailored as needed to different production regions.
62. Lack of information on better practice methods, costs, and benefits. Many traditional farmers are simply unaware of Better practices. Furthermore, without detailed information about the practices, they may not understand how to implement them. Finally, most farmers want to understand the financial implications of any new farming methods before they adopt them, even on a small scale. Other than for palm oil, there is little written on Better practices. As a result there is a real need for an easily accessible database in multiple languages.
63. Lack of information on financial benefits of BMPs. The few existing descriptions and analyses of BMPs are usually devoid of any financial analysis. Where financial analysis exists, it is for a single practice and does not show how multiple BMPs play out financially for the producers. More work needs to be done to look at the financial implications of BMPs, as well as their cumulative impact on production, impacts and net profits along the value chain.
64. Difficulty of reaching a large number of smallholders. Smallholders in palm oil (about one third of production in Indonesia) and in cocoa (nearly all production in Ghana, Côte d'Ivoire and Indonesia) present the additional difficulty of being hard to reach. Large numbers of farmers are spread over a vast area. In the case of palm oil and sugar, it is possible to reach smallholders through the mill or plantation where they sell their harvest. However, this requires an
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understanding and commitment on the part of the mill or plantation. In addition, smallholders need BMPs that require more labor than capital and that can be effective on 1-5 hectares (these cases have not yet been documented).
65. The BACP has identified several effective but small-scale cocoa25 farmer training programs that can address biodiversity issues. The challenge lies in increasing their scale and linking them to the value chain (see Annex 6, Portfolio of Sample BACP Projects).
66. Lack of information tailored to financial institutions or purchasers. The overwhelming majority of demand-side actors have not been presented with the business case for insisting that growers and primary processors adopt BMPs. Yet if financiers insisted on the adoption of financially viable BMPs, the producers’ bottom line would benefit. In order for a financial institution or purchaser to understand the financial impact of biodiversity-friendly BMPs and press for their adoption, additional research needs to be undertaken. This research would initially be used to make the case to financial institutions for considering BMPs. Subsequently, it could feed into an investment screening system.
67. Risk aversion. Farmers tend to be conservative regarding the adoption of new practices. This is particularly the case among smallholders whose entire annual income depends on the success of their crop. For plantations, risk aversion can be overcome through the implementation of pilot projects. The results of these projects would be disseminated through roundtables. The work of the smallholder is more laborious, but existing programs, such as the cocoa wing of the Sustainable Tree Crops Program, have found that once a certain critical mass of farmers understand new practices and their economic and environmental benefits, it becomes easier to attract and train additional recruits.
68. Tailored financial instruments. Most oil palm producers still use the sale of timber and pulp wood to finance the establishment of new plantations. Reducing the upfront costs or delaying the repayment of loans could create incentives for producers to develop systems of rehabilitating degraded lands for production. For example, the increased value in land (developed vs. degraded) might provide an opportunity to cover investment costs. This would require making a credible financial case to lending institutions. Some international banks, especially European ones, might be willing to forego principal payments for a longer grace period due to consumer interest in this issue.
69. The efforts of the IFC’s Agribusiness Department to set conditions for pre-financing production with Grupo André Maggi (Brazil’s largest soybean producer) is a rare example of a financial institution adding environmental conditions to a loan. The deal’s pre-financing conditions, which required that the Group implement BMPs, led to Grupo André Maggi providing working capital to hundreds of soybean producers who sell their crop to the Group. The BMPs improved producers’ financial viability while reducing their environmental impact.
70. Access to financing. Some changes in production practices require substantial investments, which are usually not bankable through the local banking structure due to, inter alia, their innovative nature, the small size of production operations, or the producer’s lack of collateral. These innovations may eventually lead to lower operating costs. But the capital cost of 25 In Ghana and Côte d'Ivoire, government agricultural extension services are not effective, and therefore private sector and/or NGO alternatives need to be put in place.
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conversion can make it hard to reach that point. For example, for cocoa, replanting on the same land is a costly and technically difficult process because of the toll that it takes on soil health and water resources. Without access to finance, there may be considerable incentives to expand production cheaply through simply clearing forest for new plantations. Access to finance can also be an issue for sugar in Brazil, and for palm oil in some countries, such as Indonesia.
71. Lack of laws, legal enforcement, or changes in laws. The rapid clearing of natural habitat is typically spurred by positive market signals. However, government-defined areas of agricultural expansion that take biodiversity into account are often insufficiently defined and un-enforced (e.g., in Indonesia). Laws regarding permanent set asides, such as set-aside requirements on Brazilian plantations, are either weak, unclear, contradictory or not enforced.
72. Rising prices. When prices are high enough that the portion paid to producers is satisfactory, there is little incentive to get producers to change what they are doing. As prices deteriorate or as production declines due to disease and pests, producers become more receptive to change.
F. The IFC’s Role in Agricultural Commodity Markets
73. The BACP is a logical continuation of the IFC’s efforts to promote sustainable agricultural commodities. In 2001, the IFC used funds from its own profits to leverage contributions from other parties to support the identification of and adherence to BMPs. Through this early work on BMPs, the IFC came to recognize that its ability to bring about change would be strengthened by a partnership with interested and motivated stakeholders. This led to the formation of the joint IFC/WWF Initiative on Better Management Practices in Agricultural Commodities (BMP Initiative), which has been instrumental in establishing the industry roundtables that are discussed in Section C. The BACP strengthens and complements the discussions taking place through the ongoing BMP Initiative by providing technical assistance (TA) to the development of the roundtables’ biodiversity-related principles and criteria, and their uptake throughout the value chain.
74. BACP can also help mainstream IFC clients to adopt biodiversity friendly practices by integrating such adoption in agribusiness lending operations where relevant26. This would be done through TA. The TA would not cover any costs related to IFC’s own work, nor would it subsidize IFC’s client. TA funds would go to activities strictly complying with the BACP criteria, although possibly channeled through a client. When channeled through a client, the funds would support testing replicable indicators or BMPs which would be then widely shared.
75. The IFC’s Agribusiness Department (CAG) provides agribusinesses with equity, debt, working capital, and other sources of finance. Table 1 shows the extent of the IFC’s current portfolio in the BACP’s four target commodities. The table illustrates that the amount of finance that the BACP could leverage through the Agribusiness Department is sizeable. As of March 2006, IFC investments in the BACP’s target commodities totaled over US$ 1.3 billion. Recent new IFC investment opportunities would be well-aligned with the BACP. For example, the CAG is currently considering a US$ 25 million deal with a commodity trader. The BACP could leverage this deal, by providing TA to a partner NGO in the project to buttress the borrower’s
26 Projects submitted to BACP via IFC would go through the same eligibility screening as any other project proposals. See Section K, The BACPProject Cycle and Project Selection Criteria for more detail.
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understanding and deployment of BMPs. Other deals of this type are likely to arise in the near future.
Table 1: Summary of IFC Agribusiness Department's Investments in BACP's Target Commodities
IFC investmentand total investment leveraged by IFC Main countries Sample partners
Palm oil US$ 107 million IFC investmentUS$ 165 million total IFC investment, including leverage via syndication
IndonesiaCôte d’IvoireBrazilThailandMexico
WilmarVerlaineCosmivoireDenpasaPTK KSPWings Oil PalmUPOIC
Cocoa US$ 52 million IFC investment Worldwide / Africa
Ecom Olam
SugarcaneUS$ 213 million IFC investmentUS$ 236 million total IFC investment, including leverage via syndication
IndiaBrazilPeru
Balrampur Chini MillsCosanParamonga
Soybeans
US$ 493 million IFC investmentUS$ 887 million total IFC investment, including leverage via syndication
ArgentinaBrazil
Aceitera General DehezaAndré MaggiBungeMolinosOleaginosa Oeste (Glencore)SadiaVicentin
TotalUS$ 866 million in IFC investmentUS$1,341 million total IFC investment, including leverage via syndication
Source: IFC Agribusiness Department Databases (March 2006).
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76. In support of its goal of mainstreaming the adoption of BMPs, and with duly documented consideration and care for non-duplication of efforts or funding, the BACP can also enlist the capacities, contacts, and resources of several other IFC departments or programs, including the Global Financial Markets Department, the Global Manufacturing and Services Department, the IFC/GEF Environmental Business Finance Program (EBFP), and/or the SME Linkages programs. The SME linkages program in particular can be instrumental in reaching smallholder producers (see example in Annex 6, Portfolio of Sample BACP Projects), and BACP can coordinate with EBFP’s planned supply-chain financing to increase each program’s overall impact.
G. The IFC’s Experience with Market Transformation
77. The IFC has been a pioneer in using GEF funds to transform markets worldwide (initially for energy efficiency and renewable technologies, and more recently in the biodiversity focal area).27
A hallmark of the IFC’s approach to market transformation is its holistic approach to targeting both supply and demand. For example, from 1995 to 1997, the IFC/GEF Poland Efficient Lighting Project (PELP) combined a price buy-down scheme with a consumer education campaign to simultaneously decrease price and increase demand for energy-efficient compact fluorescent lamps (CFLs). This helped the Polish CFL market to escape from the vicious circle of high-price and low-demand. The subsequent IFC/GEF Efficient Lighting Initiative (ELI) spurred transformation in the lighting market in seven additional countries (Argentina, the Czech Republic, Hungary, Latvia, Peru, the Philippines, and South Africa). 78. Through the IFC/GEF Hungary Energy Efficiency Co-Finance Program (HEECP), the IFC demonstrated that it was possible to work with Financial Intermediaries (FIs) to establish financial instruments that help create or strengthen markets for energy efficiency services. The HEECP pooled US$ 5.7 million of GEF funds with US$ 12 million of IFC investment to build the energy efficiency financing capability of Hungarian FIs.
79. With the Program on Commercializing Energy Efficiency Finance (CEEF), the IFC broadened the scope and scale of its use of financial instruments to stimulate environmental markets. CEEF, which operates in the Czech Republic, Slovakia, Estonia, Latvia, and Lithuania, supports the operation of a partial loan guarantee facility for energy efficiency. It combines US$ 18 million of GEF funds, bilateral donor support totaling US$ 1.3 million and an IFC direct investment of US$ 30-75 million.
80. Meanwhile, the IFC/GEF SME program, in its ten-year lifetime, lent US$ 20.8 million to 140 SMEs whose activities helped mitigate climate change or protect global biodiversity. The SME Program was the first GEF-funded, non-grant SME financing program targeting the private sector. Its successor, the Environmental Business Finance Program (EBFP), has GEF funding of US$ 20 million.
81. When contemplating market transformation, an important difference between agricultural biodiversity and energy efficiency is that agricultural commodity markets are inherently international. Producers, transformers and consumers are spread throughout globe. Therefore, the 27 See GEF Project Reports and/or Project Documents for PELP, ELI, HEECP, SME, CEEF, and MAMTI.
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BACP needs to take a global perspective by addressing stakeholders wherever they are. This approach was first used in the IFC/GEF Marine Aquarium Market Transformation Initiative (MAMTI), which is introducing sustainable marine aquarium fish harvesting practices. MAMTI interacts with tropical fish providers in a number of different coastal and island nations in the developing world and with aquarium retailers and hobbyists in industrialized nations. The IFC is now seeking to more aggressively pursue opportunities for large-scale mainstreaming of biodiversity into major market sectors, including agriculture.
82. With the BACP, the IFC will be able to use its market transformation experience in a new market (agricultural commodities) and at a broader scale (leveraging mainstream IFC lending). The IFC’s experience with market transformation brings several assets to the BACP. It gives the BACP design team an in-depth understanding of the fundamental concepts of market transformation such as how to create supply-push, and demand-pull, or to remove friction from a market. It also endows the BACP with the know-how to face the practical challenges of implementing a market transformation program such as: adopting a flexible approach to program management, designing meaningful indicators, integrating regular data, gathering into routine program operations, or responding effectively to changes in the market.
H. Program Objective and Outcomes
83. The ultimate goal of the BACP is to contribute to preserving global genetic species and ecosystem diversity in agricultural production landscapes, by transforming markets for target agricultural commodities.
84. To achieve its ultimate goal, the BACP will target the three major groups of market actors in each commodity: producers (supply), traders and purchasers (demand), and financial institutions. For each group, the BACP will aim to create an enabling environment that generates incentives for greater supply, demand, and financing of biodiversity-friendly products. This approach is reflected in the BACP’s specific objectives, or outcomes, which are presented below.
a. A strong enabling environment supports the integration of cost-effective biodiversity preservation opportunities at all levels of the value chain. The enabling environment includes effective international multi-stakeholder commodity dialogues and supportive government policies;
b. Biodiversity-friendly practices are incorporated into production and on-farm processing, leading to a measurable decrease of the farm’s impact on biodiversity of global significance. These practices may be related to land use (e.g., on-farm set-asides that result in the creation of wildlife corridors), to input use (greater uptake of integrated pest management, more rational use of water and fertilizer, and composting of agricultural waste);
c. There is a significant mainstream demand from traders, off-takers, processors, and other purchasers for commodities produced using biodiversity-friendly techniques.
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d. The demand could be for products that meet the RSPO Principles and Criteria (such as palm oil) or for products that meet specific biodiversity protection criteria (such as cocoa); and
e. Financial institutions recognize the economic benefits of biodiversity-friendly production methods and practices, and integrate them into their operations. For example, the FIs could integrate biodiversity concerns into their investment screening processes or could develop financial instruments specifically designed to help level the playing field for biodiversity-friendly practices.
85. The above combination of outcomes will lead to the overall market transformation depicted below. The bell curve on the left represents the current state of environmental performance. Typically, government programs focus on the poor performance end of the bell curve. Most eco-labels focus on the high-performing end of the curve and seek to reward the best performers. What the BACP seeks is to shift the entire curve so that better practices become mainstream (i.e., better practices are in the central part of the curve, rather than in a niche nestled at the end of the curve). Through the BACP’s engagement with the roundtables, it will also work towards a process of continuous improvement. This will ensure that as new practices or technologies appear that can lessen agriculture’s impact on the environment they will be taken up by industry. In this way the industry will continuously ratchet up its environmental performance standards.
Figure 6: Graphic Depiction of the BACP's Market Transformation Goal
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Percentage of Producers
Environmental Performance
Accelerating Better Practice Adoption
I. Program Activities
86. The Program will fund specific projects implemented by private sector, NGO, and other partners. The selection of projects will be guided by commodity-specific Market Transformation Strategies. Each Strategy will spell out BACP’s market transformation goals for the next two-year period, what its funding priorities and budget allocations are for the coming two years, how the selected priorities will help meet those goals.28 It will also indicate what types of activities within each program component (see below) best help meet the priorities in the relevant period.BACP will issue general Requests for Proposals (RFPs) that meet the goals laid out in the Strategy, and that fit within the components described below.
87. The BACP has defined four complementary program activity components which promote the mainstreaming of biodiversity-friendly practices by different actors within agricultural commodity markets.29 These components, which reflect BACP’s objectives and outcomes, are:
Component 1: Support activities for an enabling environment document the best biodiversity-friendly practices, make the business case in terms of biodiversity, business, supply security, farm lifetime, social and other, of biodiversity friendly practices; and support policy dialogue between organized commodity private sector players and relevant public policy makers;
Component 2: Support better production via site-specific projects;
Component 3: Support increased demand for products with more positive biodiversity impacts; andComponent 4: Encourage the development of financial services to support biodiversity-friendly practices.
88. The BACP also includes a management component and a M&E component. A specific sub-objective of the M&E is to document the actual impact on biodiversity of the use agricultural verification/certification systems. Indeed, there is currently relatively little knowledge on this topic, and the BACP M&E will contribute significantly to this knowledge gap. A specific program output has been added to the logframe to reflect this. See Annex 7 and 8 for more detail.
89. All BACP activities will be tailored to specific commodity production methods. The barriers targeted, will fit within a larger commodity-specific Market Transformation Strategy (see Section K). The following section discusses each component of the BACP in turn. It lists the types of projects that will be supported under each component, and then presents specific sample projects. The sample projects given (see Annex 6, Portfolio of Sample BACP Projects) emerged from the BACP’s dialogue with stakeholders during the program development phase.
Component 1: Create an enabling market environment by: documenting the better biodiversity- friendly practices ; making the business case in terms of biodiversity, business, supply security,
28 If warranted by extraordinary events, the Strategy for a given commodity can be revised before the end of the two-year cycle.29 Alternative Program concepts were contemplated such as focusing on purely organic agriculture, non-commodity based approaches, greater emphasis on non-production related conservation, exclusively project-level or commodity-wide interventions, etc. The proposed concept and design of the Program, however, was deemed to be the most resource efficient, sustainable and with a greater potential impact on global biodiversity, as it is based on the force of the convergent simultaneous action of highly organized players in a given commodity market.
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farm lifetime, social and other biodiversity friendly practices; and supporting policy dialogue with the relevant public policy makers
90. As needed, for each commodity:a. Ascertain biodiversity-friendly practices on a regional basis (biodiversity-friendly
practices, technology, or labor inputs may vary according to factors such as geography or production methods);
b. Prioritize practices or methods that merit support from the BACP. Priorities should be made on the basis of biodiversity impact and potential for market adoption;
c. For each priority method, document: The specific methods involved and how to apply them; The biodiversity benefits; The financial and economic costs and benefits; and Other benefits, including increased farm lifetime, supply security, social and
financial benefits.
The documentation will be tailored to different audiences, including, producers, FIs, off-takers, traders and/or millers. For example, information for producers will be prepared in the relevant local languages.
d. Disseminate the results of each documentation activity through commodity roundtables or other means, as suitable. This includes other commodity meetings or conferences, internal IFC channels, and the BACP web site;
e. Participate in annual roundtable meetings (and their working groups, if relevant) as a means of staying informed of issues, players, and events in a given commodity market. This will also provide visibility for the BACP and its TA mechanisms;
f. In order to ensure a biodiversity focus, include a BACP representative as a member of the steering committee of each roundtable, where possible;
g. Contribute, either financially or in-kind, to the efforts of the roundtable’s Technical Working Groups (TWG) addressing biodiversity;
h. Conduct policy analysis to identify opportunities for changes to agricultural or related regulations that would require or encourage the adoption of cost-effective BMPs;
i. Support the development, on a national, regional, or local level, of landscape-level land-use planning that discourages or forbids expansion into natural habitat and that encourages expansion into suitable degraded or abandoned lands;
j. In order to obtain policy changes from governments at relevant levels (national, regional and local), prepare specific documentation and/or events that facilitate dialogue with government on biodiversity issues (in collaboration with roundtable members and with the World Bank); and
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k. Once lessons have been learned in one country, seek to disseminate them to other countries via roundtable dialogue or other means. This can include dissemination beyond BACP’s initial selection of target countries.
91. For each commodity, BACP will prepare, and update as necessary, an overview of the relevant policy barriers and how they might be addressed within the context of the Program.
92. BACP will seek to remove these policy-related barriers in a way that be considerably leveraged by the global market (i.e. by a significant demand for RSPO-verified better palm oil --or for another of the four commodities in a similar fashion) and by the strong normative power of the voluntary codes of conduct adopted by the commodity roundtable members; and, by addressing all the other barriers to BMP adoption in a coherent, concomitant way. BACP will use existing private sector-led roundtables and will "surf" on the wave of the new markets so created --and their new rules-- to help produce the desired impact.
93. By working hand-in-hand with commodity roundtables, BACP's Component 1 would be able to identify very precisely those policy traits that point in the wrong direction (e.g. lack of enforcement of existing legislation or regulation, financial disincentives, land-use policy, etc) and then seek to address (and hopefully remove) them, by documenting their impact, documenting the business and overall economic case for BMPs, and by supporting the roundtables to engage with concerned national governments or other regulatory levels. The existing roundtables have all included already in their mandate and role the need for this kind of engagement at some strategic points along their processes. And IFC has also already engaged with the relevant units of the World Bank to help facilitate these activities in a collaborative fashion.
94. Land use planning issues are of particular interest to BACP, at the farm level and at the landscape level. BACP will seek to work with public authorities to share experience among regions and countries, to support the full application of existing laws and regulations, and to test and apply new land-use planning approaches, such as High Conservation Value screens.
95. During appraisal, IFC conducted a preliminary review of policy barriers to the production of biodiversity friendly palm oil in Indonesia, and cocoa in Ghana and Côte d'Ivoire. The review suggests policy areas in which support from BACP would have the greatest impact.
96. For cocoa in West Africa, one of the most important policy issue is ownership of timber trees by cocoa farmers. Policy reforms are needed to clarify property rights and access to income from these trees so as to encourage more diversified land cover on cocoa farms. It will also be important to work with the cocoa marketing board in Ghana to facilitate the sale of verifiable better cocoa, and to encourage investments in agricultural extension efforts to reduce cocoa pesticide usage in Indonesia.
97. For palm oil in Indonesia, an important policy opportunity seems to be the re-classification of degraded forests to allow planting of sustainably produced palm oil. This will not be an easy task and will require the combined efforts of many government and non-government stakeholders, but the end result could be significantly reduced pressure on remaining natural forests and biodiversity. Another needed policy reform is the strengthening of government extension
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services in Indonesia in particular, to educate smallholders on the use of integrated pest management methods. It will also be important to ensure an enabling policy environment for the establishment of certification programs for palm oil. Finally, to the extent that market-based payments for ecosystem services emerge, BACP can explore the feasibility of using such payments to promote the adoption of BMPs.
98. See Annex 6, Portfolio of Sample BACP Projects, for information on the following sample projects: Regional High Conservation Values (HCV) Assessments to Identify Areas for Palm Oil Development and Conserve HCV Landscapes in Borneo and Sumatra, Help the Better Sugarcane Initiative to Document Best Practices that Protect on Farm and Landscape Level Biodiversity of Global Significance, and Participation in RSPO Technical Working Groups on Biodiversity.
Component 2: Support better production via site-specific projects
99. The BACP will help implement alternative production methods that have a proven positive impact on biodiversity and significant potential for development and replication. These will typically be at farm level (or for several nearby farms). The BACP will also implement broader landscape management activities in relevant commodity production areas with NGOs and public partners.
100. The production changes that will be encouraged could include integrated production methods or systems (such as Integrated Pest Management or Integrated Nutrient Management) or more specific changes (elimination of burning, rationalization of water use, use of renewables, cover crops, crop rotations, maintenance of on-farm genetic diversity,30 inter-cropping, re-forestation of fringe areas, abandoning farming on marginal lands, improved wastewater management, greater efficiency of fertilizer use, and improved soil management). Each project will need to demonstrate a clear link between a change in production practices and a positive change in landscape biodiversity.
101. The specific types of activities the BACP will support include:
a.The creation of commodity-specific workbooks, guidance documents, or web sites that provide information to producers about better practices that measurably reduce key biodiversity impacts as well as their overall costs;
b. The implementation of proven beneficial production methods used by a given producer or in a certain region when there are market failures that prevent the private sector from adopting them, and the methods have good replication potential;
c. A demonstration of the applicability (through applied research in a particular region or ecosystem) of alternative production methods that have yielded biodiversity and business benefits in other landscapes;
d. Support for the formulation and/or implementation of land-use management plans for the protection of high-value habitat and biodiversity that is being threatened by the
30 When agricultural plantations are not just monocultures at the species level, but also at the clonal level, large stands of genetically-identical plants are at high risk of pest and disease attack.
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unsustainable production methods of agricultural commodities in a given region/ ecosystem;
e. Support for the implementation of production methods which contribute to the restoration of degraded habitats and/or the restoration of wetlands or biological corridors in agricultural landscapes;
f. Support for the implementation of production methods which facilitate the expansion into abandoned or degraded lands as an alternative to expansion into natural habitat;31
g. The creation or enhancement of non-production related biodiversity conservation initiatives engaged in by parties involved in the production of agricultural commodities (e.g., biodiversity set-asides and zoning); and
h. Work through larger market chain actors (mills, plantations, traders, and other partners) to support the adoption by smallholders of relevant BMPs, as these require a different approach from larger producers.
102. Note that the BACP will support demonstration projects only where they have strong replication potential. See Section K for other Project Selection Criteria.
103. For Sample Projects, see Annex 6, projects entitled Working with smallholders to Reduce Biodiversity Impacts from Palm Oil Production in Indonesia and Protecting Primary Forests in East Kalimantan by Developing High-Performance Palm Oil Plantations on land previously degraded by intensive logging.
Component 3: Support increased demand for products with more positive biodiversity impacts
104. The BACP will support the efforts of private agricultural commodity buyers and other value-chain participants to integrate, beyond compliance with national legislation or the IFC Environmental Performance Standards, biodiversity criteria in the value-chain. This could include supporting access to new markets for biodiversity-friendly products, supporting Identity Preserved Schemes32, quality assurance systems and certification systems, etc. which are linked to new biodiversity-enhancing production practices in the targeted commodity. From a market transformation perspective, it is important that any demand-side activity be linked with previous or ongoing project-level supply-side efforts. It must also have significant replication value at a commodity-wide level. The BACP’s demand-side activities include:
a. Support quality assurance, verification or certification schemes that address biodiversity concerns in an effective and measurable way.33 Specifically, support the formulation, field-testing, and approval of biodiversity-related principles, criteria, and verifiers (as needed by each roundtable or stakeholder group);
31 Contraindications for planting on degraded or abandoned land will include: (a) that such areas may already have lost much soil quality; (b) that criteria have yet to be agreed for deciding when the damage to an ecosystem is so extreme and irreversible as to justify (re)conversion to agriculture; and (c) that the processes by which lands are degraded (farming, ranching, etc.) may generate ownership claims that could affect the cost and ease of acquisition.32 Identity Preserved (IP) commodity production uses a combination of contract farming, information and tracking technology, production, processing and distribution technologies, and process standards. IP technology has so far largely been applied to managing risk, for example in excluding GMOs from supply chains, or ensuring quality. Once the technology and systems exist, there is the possibility of widening the set of attributes to include environmental and social issues more broadly. Use of this technology is growing.
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b. Support the setting up of relevant systems and practices to allow measurability and traceability;
c. Document and increase awareness among purchasers (traders, off-takers, etc.) of the benefits of purchasing biodiversity-friendly commodities;
d. Increase awareness of the availability of such products (through roundtables, trade fairs, publications, and Public Relations (PR)); and
e. Support applied research that addresses possible barriers to the uptake of such products, and how to overcome them (for example, segregation issues or Identity Preserved schemes).
105. For cocoa, there is already a demand among major manufacturers and retailers for sustainable products. However, there is no consensus on what constitutes sustainable cocoa. Social aspects (e.g., child labor) and the need to ensure a sufficient smallholder income have but biodiversity issues on a secondary level. However, areas planted with cocoa are expanding with insufficient or no land-use planning and on-farm biodiversity is reducing all the more so that full sun systems are being preferred. Therefore, the challenge is to establish meaningful criteria to define a sustainable product and help producers achieve it (with due respect to niche positioning and other marketing strategies of the affected manufacturers).
106. For a Sample Project, see Annex 6. The project is entitled Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain.
Component 4: Encourage the development of financial services to support biodiversity-friendly practices as needed for each commodity
a. Work with traders or other private sector actors who would like to use supply-chain finance (i.e., use future purchase commitments as collateral against short-term loans for agricultural inputs);
b. Work with FIs (including clients of IFC’s Global Financial Markets department) to incorporate biodiversity concerns into their screening methods; and
c. Work with FIs, including clients of the IFC, on the development of financial instruments that specifically address market needs related to biodiversity practices (such as an instrument that takes into account the cost differential between developing a new plantation on degraded land vs. forest land) and on ways to market those instruments to their customers.34
107. For a Sample Project, see Annex 6, Design and Test Investment Screens to Reduce Biodiversity Impacts and Brand Risks of Bank Investments.
33 BACP will only support those certification processes which have a measurable positive impact on biodiversity. This is not necessarily the case, for example, with Fair Trade schemes, or with certain organic schemes. Furthermore, BACP will not “pick favorites” among certification schemes.
34 One bank consulted during the program development phase said that for them, the difficulty lay not in devising instruments for financing BMPs, but rather, in the marketing and outreach needed to promote those instruments to potential clients.
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J. Benefits to Partners
108. As shown in the list below, the benefits to partners are many. It is interesting to observe that each type of partner has tangible gains (such as increased production, better portfolio performance or increased market share) and intangible ones (such as increased enterprise pride and increased consumer confidence).
109. The BACP will first bring about a number of public benefits that are in line with the goal of government agencies and of the GEF, such as:
a. Habitat protection with ensuing biodiversity benefits (such as protection for threatened species, greater presence of non-timber forest products, potential for medicinal plants, ecosystem services, and carbon sequestration);
b. Cleaner groundwater and surface water because of a decrease in agricultural run-off; and
c. Improved soil quality for future generations of growers and/or biodiversity.
110. Producers (including smallholders and large plantations depending on the commodity) have much to gain from the BACP. The benefits of participating in the program and adopting promoted practices include:
a. Increased production and efficiency;
b. Reduced costs;
c. Increased net profits (through reduced costs, productivity gains, and/or premiums);
d. Reduced staff turnover and increased morale;
e. Reduced conflicts (and costs) with labor and neighbors;35
f. Increased access to markets;
g. Reduced transaction costs to sell products;36
h. Reduced impact of government regulation and/or more time to comply37;35 When producers obey the law, obtain legal title and are fair with labor and neighboring communities, the number of conflicts, legal and press oriented, that arise is drastically reduced. Conflict takes time and costs money. It detracts from the firm's overall objectives. Some companies have gone out of business over such conflicts. The degree to which they can be avoided by doing things properly from the outset is a real financial gain.36 Producers that do not have ready buyers for their product have to find them. This varies a bit depending on scale and the degree of processing that is involved. Having forward contracts or willing buyers for Better commodities prior to harvest makes one less worry for the farmer. Also, when a producer has to dump product onto the market at harvest the price will generally be lower than at any other time in the year. 37 Experience has shown that voluntary standards often exceed government-mandated standards. Therefore, when a voluntary industry-based group (such as the roundtables) works to develop a new standard, government usually allows the industry group sufficient time to develop its own standards. These standards then typically form the basis for government standards. Industry members who participate in the development of voluntary standards effectively feel a reduced impact from the subsequent government regulations, and since they “see things coming from afar,” they have more time to comply.
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i. Increased pride in enterprise and standing in the community; and
j. Improved access to capital.
111. The benefits to traders will be strongest for early adopters and include:
a. Reduced transaction costs for dedicated buyers;
b. Ability to differentiate their product from those of a competitor, and therefore to increase their market share;
c. Potentially higher margins on differentiated product; and
d. “Decommoditization” of trade and rewards for early adopters.38
112. Food manufacturers and retailers will appreciate both the tangible and intangible benefits (particularly producers of branded goods exposed to public opinion). These include:
a. Improved supply chain management;39
b. Reduced transaction costs with steady suppliers;
c. Improved consumer confidence;
d. Improved brand image;
e. Reduced risk of product quality or health and safety problems; and
f. The potential to convert producers to purchasers (selling down the pyramid).40
113. The BACP can enhance the performance of financial institutions by helping to provide:
a. Improved portfolio performance (less default, higher returns);
b. Reduced risk;
c. Reduced costs through simplifying ways to assess social and environmental impacts and exposure;
d. Improved brand image; and38 Traders and distributors benefit from having a wide range of commodities to sell to manufacturers and retailers, depending on the product. Differentiated product lets them provide a range of value for buyers who in turn want to position themselves in the market. Those traders that do this first are likely to be able to get a more significant margin than those traders who are forced to do this after the buyer stipulates what they want. This is easily illustrated by the GM trade to EU: Cargill now sells certified non-GM product to Frito and other companies. They were proactive about this and saw the advantage in the market. They make more money on these items and provide a service.39 Most companies have quality specifications for the commodities that they purchase. Making a certification program for commodities simple, so that only 6-8 additional items were added, would have a great deal of appeal. It would be part of the ongoing supply chain management issue, while improving quality.40 If companies (like Unilever in Indonesia--UI) can buy from a number of small producers in a cost effective way, then those producers become potential buyers of their products. In the food industry this is important. UI has chosen to buy soybean directly from producers in Indonesia, thus supporting 5,500 families. If the same amount were bought in the US it would support 3 family farmers, or in Brazil, 1 family. This helps create more buying power in rural areas, and incremental increases in income are spent disproportionately on eating up the food chain.
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e. The potential to work more easily with like minded investors around common principles.
114. NGOs are expected to play an important role in the delivery of the BACP’s projects. Through their involvement, they will gain:
a. Influence on the definition of key problems and opportunities;
b. Better use of scarce resources;
c. Lasting relationships with partners for future work;
d. Alignment with the private sector and producers for positive change; and
e. A focus on mainstreaming, rather than on niche markets.
115. The BACP will provide government agencies with new knowledge that will enable them to better fulfill their mandate. The BACP will:
a. Bring a new and more complete understanding of BMPs and biodiversity in production landscapes;
b. Allow regulatory, permitting, and licensing entities to move beyond compliance to what is possible;
c. Help government agencies raise the bar on what are “good” practices;d. Shift the focus to performance rather than prescription;
e. Reduce citizen concerns thanks to credible plans to address key impacts; and
f. Significantly contribute to biodiversity conservation through market mechanisms, and thereby reducing the burden on government conservation budgets.
116. Commodity roundtables. The BACP’s engagement will make the roundtables be more effective by helping them to:
a. Deliver on the mandate of more sustainable production;
b. Leverage investment;
c. Leverage on-the-ground change;
d. Develop investor screens that would perpetuate the roundtables’ efforts;
e. Ensure the focus on key impacts, measurable performance levels, and improved performance against a benchmark;
f. Ensure a commodity-relevant approach rather than a niche market approach;
g. Increase knowledge of biodiversity management in production landscapes; and
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h. Exert greater influence within the market chain and with producers, NGOs, investors, buyers, governments and researchers.
K. The BACP Project Cycle and Project Selection Criteria
Introduction
117. The BACP project cycle reflects the BACP’s market transformation goals. The key element of the cycle is the commodity-specific Market Transformation Strategy, which defines the BACP’s market transformation priorities, by commodity, for a two to three year period, and which elaborates (as needed) on the Project Selection Criteria presented below. The project cycle is illustrated in Figure 7 hereafter.
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Project Cycle: Steps and Responsibilities
Project Proposal
Eligibility screening of project proposal
Project approval
Contracting of independent parties
Implementation of projects
Evaluation of projects
Roundtables, commodity producers, financial intermediaries, processing companies, retailers, certification
bodies, NGOs, donors
PMU / M&E Unit
IFC approves
PMU and roundtables advises
PMU
Contractor (NGO, local firm...) implements
PMU supervises
M&E Unit monitors
M&E Unit
Lessons Learned
Market transformation Strategy / Selection Criteria
Request for proposals
PMU / M&E Unit
PMU prepares
Steering Committee approves
PMU
Dissemination by the PMUProject cycleResponsibility
Project Cycle: Steps and Responsibilities
Project Proposal
Eligibility screening of project proposal
Project approval
Contracting of independent parties
Implementation of projects
Evaluation of projects
Roundtables, commodity producers, financial intermediaries, processing companies, retailers, certification
bodies, NGOs, donors
PMU / M&E Unit
IFC approves
PMU and roundtables advises
PMU
Contractor (NGO, local firm...) implements
PMU supervises
M&E Unit monitors
M&E Unit
Lessons Learned
Market transformation Strategy / Selection Criteria
Request for proposals
PMU / M&E Unit
PMU prepares
Steering Committee approves
PMU
Dissemination by the PMUProject cycleResponsibilityProject cycleResponsibility
Figure 7: The BACP Project Cycle
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Commodity Market Transformation Strategy
118. Transforming agricultural commodity markets towards being more biodiversity-friendly is a multi-step process. One must first identify the habitat one wishes to preserve, the negative (or positive) impacts of production on that habitat, the related land-use planning issues, the performance levels associated with acceptable impacts, and the practices that can diminish the negative impacts and increase the positive impacts. It is then important to understand the specific barriers to the adoption of these practices, and to design Program elements that remove these barriers. For palm oil, that work has largely been accomplished during the program development process, in consultation with the RSPO and other parties. As a result, the BACP will only need to refine it as a first step in the implementation stage. For sugarcane and soybean, the roundtable dialogue itself has not progressed as much, so the BACP is not as far ahead.
119. During the program development phase, it was observed that some BMPs have “layers” of barriers. For example, even if a first barrier is removed (such as access to information), other barriers might remain (such as access to markets or to finance). In order to support effective market transformation, the BACP will need to “peel away” each barrier in a phased manner.
120. Furthermore, the BACP’s target markets can change quickly. Unanticipated events (climatic or other natural, market or political) can have a strong and sudden impact on prices, production areas, and habitat. Applied research can bring to light new or more cost-effective methods of lessening the impact of production on biodiversity.
121. The BACP Market Transformation Strategy responds to the need for a phased approach to market transformation, and for regular monitoring of market and Program data so that the Program is ready to respond nimbly to market changes. The Strategy will set objectives and ways to achieve them, for each commodity, based on the assessment of (a) the status and trends for biodiversity affected by production; (b) the status and trends related to the mainstreaming of biodiversity at the producer level, the demand level, and the financial level; (c) the related policy context; (d) the status of industry roundtables or other fora; and, (e) the feedback/lessons learned from ongoing BACP projects.
122. Based on this information (and with additional input from the M&E Unit), the BACP Program Management Unit (see more under Section L, BACP Management, below) will prepare a Market Transformation Strategy for each commodity. The Strategy will then be approved by the BACP Steering Committee. The Strategy will spell out: the BACP’s market transformation goals, funding priorities and budget allocations, how the selected priorities will help meet those goals, and what the indicators are for each goal.41 It will also indicate what types of activities (see Section I, Program Activities) best help meet the priorities.
123. Because it establishes measurable indicators for each goal, the Strategy also provides a map for how the BACP’s progress will be assessed.
124. The Strategy will be prepared by the BACP Program Management Unit (PMU), with support from the relevant Roundtable organ and/or consultants, and approved by the BACP Steering Committee. It will be a public document, available on the BACP web site. In response
41 If warranted by extraordinary events, the Strategy for a given commodity can be revised before the end of the two-year cycle.
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to significant changes in the market, the PMU may propose a revision of the Strategy. It is expected that each commodity Strategy would be revised every 2-3 years.
125. As part of appraisal, IFC has prepared preliminary Market Transformation Strategies for Palm Oil and Cocoa, attached as Annexes 14 and 15, respectively. The palm oil strategy has been reviewed by the RSPO. The preliminary Strategies will be finalized by the PMU and then approved by the Steering Committee at the beginning of implementation.
Project Selection Criteria
126. The other essential component of the project cycle is the Project Selection Criteria. In addition to fitting within the commodity strategy above, any project funded by the BACP must meet Project Selection Criteria. These initial criteria are presented below. Additional criteria may be specified in the Strategy on a case-by-case basis. The Criteria as a whole will be approved by the Steering Committee in their first meeting, and can only be revised with approval of the same Committee.
General127. All projects must comply with IFC’s Policy and Performance Standards on Social & Environmental Sustainability. See Annex 11.
Reduced impact of production on biodiversity of global significance 128. A project proposal must clearly demonstrate how the project will reduce the negative impact of production on biodiversity. The impact reduction can be direct (such as through the implementation of specific production or milling practices) or indirect (through studies to generate another level of information for better decision making, financing, and other activities). See Section I, Program Activities for more details.
129. The biodiversity targeted by the project must be of global significance. This would include high conservation value habitat, habitat for threatened species (that are listed by IUCN) and areas listed in a country’s National Biodiversity Strategy and Action Plan (NBSAP), areas that provide critical ecosystem services, etc.
130. All projects must be supported by a recognized biodiversity conservation specialist (individual or organization), such as a local or international NGO or research entity.
Incrementality131. The proposal must demonstrate that without funding from the BACP, the project would not have taken place, or would have taken place at a later date, at a smaller scale, or with less benefits to biodiversity of global significance.
132. The proposed activity must contribute to bringing about a transformation regarding the impact on biodiversity of producing or processing the target commodity, or in the market uptake of commodities with less impact on biodiversity.
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133. The BACP funds will only be used to support performance levels that are beyond compliance with national or local laws and regulations, and IFC’s Policy and Performance Standards on Social & Environmental Sustainability.
Clear and measurable outputs, outcomes, and indicators134. The proposal must present expected outputs and outcomes that are linked to the outputs and outcomes described in this document. Each project supported by the BACP will be required to include some outcome measures at the project and landscape levels, in addition to proxy measures, to demonstrate their impact on achieving their stated biodiversity conservation targets. The project partners will also be required to state clear causal relationships between the adoption of BMPs and biodiversity conservation, and the underlying assumptions, as a prerequisite for receiving financial support. At a minimum, these outcomes should focus on changes in habitat area and quality, if species-level M&E is not practical or appropriate.
135. Clear evidence that applicant proposals will promote both biodiversity conservation without negatively impacting social wellbeing will be a major factor used in the project screening and application process. The BACP M&E Unit will provide input to this process and be available to provide technical assistance to successful applicants to strengthen the design and implementation of their M&E activities. A necessary and sufficient set of indicators will be finalized at the onset of the implementation of BACP.
Co-financing136. The proposal must clearly document the sources of co-financing at the level of 1:2. All other things being equal, the BACP will give priority to projects with a higher co-financing ratio. In-kind co-financing is acceptable but can form no more than one-quarter of total co-financing proposed.
Social impacts and local engagement137. While social aspects are not a direct funding priority of the BACP, all proposals will need to show that they take the social implications of the project into account. Proposals must identify and address potential social issues by demonstrating a partnership with a local community or a leading local social organization. At a minimum, the proposed project must not have any adverse social impacts. Projects that promise to have a measurable positive social impact, for example through a fair trade component or equivalent will be favored.
138. Each BACP project will need to develop a framework of collaboration with local stakeholders prior to submission to the BACP.
Country-drivenness139. Individual projects funded by BACP must be fully consistent with GEF criteria on country drivenness.
Sustainability140. The project must show that the practice or approach it promotes is ultimately based on a sound business practice – that there is a clear business case for the project as envisaged.
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Replicability/Adaptability141. The proposal should give concrete examples of how the project can or will be replicated. All things being equal, the BACP will favor projects with high replication value.
142. In the interests of replicability, preference will be given to projects that include a private sector partner committed to scaling up practices developed or tested via the BACP.
143. All projects must include an information dissemination component, to share lessons learned.
Restrictions 144. In addition, the following restrictions are placed on the use of BACP funds:
145. BACP funds will only target the program’s four selected commodities: palm oil, cocoa, sugarcane, and soybeans.
146. BACP will not channel GEF funds to directly subsidize private sector firms; BACP funds may however be channeled through private sector actors in certain projects, in a transparent and verifiable manner, for a specific biodiversity-enhancing activity or project which meets the BACP’s criteria. In general, BACP funds will go to third parties such as NGOs, small local specialized agricultural or environmental consulting firms, associations, applied research institutions, field schools, foundations, etc. which are able to implement the TA. Private sector partners at any step of the supply chain will be expected to provide co-financing leverage, both cash and in-kind (part of the criteria).
147. The BACP will not promote production changes that merely meet the local legal or regulatory requirements of producers. However, it is expected that over the long term, the pressure created by certain market changes may help influence regulatory changes in favor of biodiversity or better enforcement of existing ones.
Project selection
148. The BACP Program Management Unit (PMU) will periodically issue a Request for Proposals (RFP) for projects in a given commodity. The RFP will be disseminated through the roundtables, through other industry bodies, and through the contacts of the PMU and the Local Focal Points (see below). It will include reference to the commodity strategy, and to the Project Selection Criteria listed above.42 The PMU will also inform potential applicants of the timetable for project submission and for grant award decisions, and will include other guidance such as simple templates or outlines for project formulation.
149. The PMU will compile all proposals, ensure they meet the Project Selection Criteria above, rank them in order of importance in terms of meeting BACP’s goals, and then submit them to IFC along with a recommendation on which projects should receive a grant from IFC. The final decision on grant recipients and amounts will rest with the IFC, which will follow its internal procedures for project management and procurement.
42 In the case where a Strategy for a given commodity has not yet been written, projects related to the elaboration of the Strategy (e.g., studies, support to roundtable organs the discuss biodiversity, etc) can be approved before the Strategy is finalized.
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Project implementation
150. Once a project is approved, the PMU (possibly through its Local Focal Points - see below under BACP Management) will be responsible for contracting, paying and overseeing the parties responsible for implementation.
L. BACP Management
151. A small Program Management Unit (PMU) will manage the BACP under a duly detailed contract with the IFC. The entity in charge of managing BACP will be selected via procurement procedures involving international competitive proposals. The best proposed methodology for managing BACP may differ in part from what is presented in this PAD, although not on fundamental aspects. The responsibilities of the PMU will include:
Finalizing program guidelines
Finalizing the Market Transformation Strategies for palm oil and cocoa, and preparing the Market Transformation Strategies for sugarcane and soy; periodically revising the Strategies in response to changes in market conditions (all Strategies will need to be approved by the Steering Committee).
Finalizing the recommended Project Selection Criteria, for approval by the Steering Committee.
Developing, administering and supervising projects
Developing a project pipeline (e.g., periodically sending out a Request for Proposals, reviewing proposals, sharing recommended proposals with the M&E team so they can give feedback to proponents on M&E issues if needed, submitting final proposals to IFC with recommendations for approval).
Administering grant agreements (e.g., drafting grant agreements with project proponents, making disbursements to project proponents upon receipt of project reports and disbursement requests, supervising projects).
Requesting periodic disbursements from IFC, and keeping detailed accounting records of all disbursements.
Elaborate periodic progress reports and other information as required.
Gathering market intelligence
Engaging with roundtables and other organizations on behalf of the program (e.g. attending roundtable meetings, participating in technical working groups if relevant) and generally gathering and reporting market intelligence for use in the program.
Based on intelligence gathered, on an annual or bi-annual basis, as needed, reviewing and modifying the budget allocation per commodity, for approval by the Steering Committee.
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Other (M&E, internal management)
Coordinating with the M&E Unit on matters related to M&E, including the evaluation plans of proposals, any M&E training or support that project proponents might need, and the definition of Triggers.
Managing Local Focal Points: the PMU will be supervised by the IFC. Since the PMU will be selected through an international competitive process, the proposed staffing indicated in this PAD is indicative. It is also not possible to say where the PMU will be headquartered. IFC expects the entity in charge of the PMU to dedicate to BACP time from one to four senior biodiversity and agriculture specialists, one of them being the Program Manager, as well as time from an administrative assistant and an accountant. Some of this time needs to be spent by specialists based locally in West Africa, Indonesia, and Brazil.
152. As warranted by the activities in a given region and by the PMU’s own local capacity, the PMU will assign or hire Local Focal Points to assist with tasks that would benefit from a local presence. These may include developing the project pipeline, attending roundtable or other meetings, and supervising local projects, as well as gathering relevant national or regional information and reporting back to the PMU (e.g., information on market evolution, policy developments, etc). The Local Focal Points will be the local “face” of the BACP and primary managers of local relationships.
153. Through the RFP process, the PMU will be free to propose its own options for the selection of the Local Focal Points. These might be members of its own organization (if the PMU has field offices in BACP’s target countries), an NGO or firm with suitable experience in biodiversity and agriculture issues, or it could be a member of IFC’s network of field-based TA delivery facilities, such as PENSA in Indonesia (Program for Eastern Indonesia SME Assistance), or the Private Enterprise Partnerships (PEPs) in Africa or Brazil.
154. Based on the state of advancement of roundtable or other industry discussions, it is expected that the local focal point for Asia would be active as of Year 1, and for Africa and Brazil as of Year 2.
155. Projects will be implemented by third party project proponents (including industry or professional associations, specialized firms, relevant NGOs or other organizations). They will have a grant agreement with the PMU, and will need to report back to the PMU.
156. Project proponents will also engage with the M&E Unit, who will review each project’s M&E plan to make sure that it meets BACP’s documentation needs, assess M&E capacity of project proponents and provide training if needed, and make sure that monitoring data is being tracked as planned, offering troubleshooting assistance if needed. The M&E Unit will be contracted directly by IFC. Additional information on its role is found in section M, Monitoring and Evaluation, and in Annex 7.
157. Finally a Steering Committee will review and approve the commodity Strategies and the Project Selection Criteria, which are the documents that govern project selection. The Steering Committee will also approve the final list of Triggers that will be proposed to the independent evaluator at mid-term. The Steering Committee will be composed of an adequate number of
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individuals from different backgrounds, with acknowledged expertise in BACP’s target commodities and/or in biodiversity issues. The Committee’s composition will ensure i) a good understanding of problems and opportunities in each commodity, and ii) legitimacy of the committee’s approval of commodity Strategies. The precise composition of the Steering Committee will be finalized at the beginning of implementation but it is proposed that it will be composed of one representative of the GEF Secretariat, one independent expert on biodiversity in the production landscape (for example from the STAP 43), one or two representatives of the World Bank (relevant agriculture, natural resources management or trade teams), one IFC staff from the Investment Support Group and one to two representatives of an IFC mainstream investment, or relevant regional, department, and one representative from each roundtable or multi-stakeholder initiative. The BACP organizational structure is illustrated in Figure 8 hereafter.
43 It may be several, one for each Strategy / commodity discussed
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Figure 8: BACP Organizational Structure
158. In order to be effective, market transformation programs need a flexible management system that allows for quick readjustments to the Program if warranted by changes in the market. This flexibility will be built into the BACP’s management process. The PMU, through the Local Focal Points, through contacts with the roundtables, or through its own network and resources, and with the support of the M&E Unit, will regularly monitor and report on target markets and on project impacts so as to identify and convey any development that might require the Program to modify its approach.
159. The management activities of the BACP will be front-loaded. Year one is expected to entail more effort than the following years. First-year activities include establishing the Steering Committee, commissioning the detailed M&E plan, fine-tuning the Market Transformation Strategy for each commodity, and conducting the first review and selection of projects. Figure 9 below shows a preliminary Gantt chart for implementation, a more detailed Gantt chart will form part of the RFP for the PMU. Immediately following CEO Endorsement, IFC will contract a consultant to prepare an Implementation Plan for BACP. The Implementation Plan will serve as a manual to guide program units and partners in their roles and responsibilities, will spell out rules and procedures and attach basic templates (e.g. for project proposals).
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Project Management Unit
East Asia
Local Focal Points
Latin America AfricaEast Asia
Local Focal Points
Latin America Africa
Global Coordination
Project proponents / implementers
Steering committee
GEF
Operators of supporting activities
IFC
Biodiversity Unit (CESBD)
M&E Unit
Ecoagriculture Partners
$ and contract or grant agreement
Information including reporting
11 To some members only
Complementary or support activities such as studies and general activities of the roundtables, which will only use funds from IFC and co-financiers (e.g. sugar BMPs study with South African Trust Fund)
Other Co-financing Sources(Program)
Other Co-financing Sources(Projects)
44 Part of the PMU, based in the field
Market transformation strategies, progress reports
Advice and approval of the market transformation strategies and project selection criteria
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2
33
33
11
44
55
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Figure 9: Initial Gantt Chart for First Phase of the BACP
Phase 1
Year 1 Year 2 Year 3 Year 4 Year 5
Program Start-Up Select and contract PMU (competitive bid process) * Establish Steering Committee * Fine-tune market transformation strategy(ies) Approve market transformation strategies Send out RFP for first round of projects * Prepare and issue grant agreements for first round of projects Put in place East Asia focal point Put in place Africa focal point Put in place Brazil focal point Ongoing Program Activities Periodically issue RFPs for additional projects Periodically revise the market transformation strategies Monitoring & Evaluation (M&E) Set up a M&E Unit Establish a detailed M&E plan Conduct baseline evaluation Conduct mid-term evaluation Market Transformation Strategy Milestones** 1. International roundtable established and operating effectively 2. Design Technical Workgroups Principles & Criteria 3. Principles & Criteria adopted by commodity roundtable 4. Pilot testing (24 months) 5. Verification/certification system established 6. "Better" product available on the market
* These tasks will be performed by IFC, all others by the PMU. ** Example for one commodity, for illustrative purposes only, assuming verifiers and indicators are adopted in yr 2. For palm oil, a similar cycle is already underway, with the adoption of verifiers and indicators in November 2005.
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M. Monitoring and Evaluation
160. The M&E Unit, will report to the PMU 44, and will be responsible for issues related to the monitoring and evaluation of the BACP. Among other things, the Unit will refine the draft M&E Plan for the Program (this will be an expanded version of Annex 7), will be in charge of program monitoring and will supervise, in collaboration with the PMU and IFC, the independent evaluations at mid-term (approximately to be held around year 4-6) and upon termination (year 10).
161. During appraisal, IFC approached Ecoagriculture Partners (EP) who accepted to implement the M&E component of BACP (see Annex 7 for a description of EP). EP is a think-tank which is developing a model for monitoring and evaluation of agricultural landscapes. EP is interested in the partnership with BACP as it will allow them to test and adjust their model. EP has co-financed some portions of the preparation and appraisal of the M&E Plan in Annex 7, and has committed to provide US$ 200,000 in initial co-finance for the M&E component of BACP, and to help seek an additional US$ 62,000 in sub-sequent co-finance.
162. The M&E of the BACP is innovative as the actual field impact of certification on biodiversity has not previously been systematically and scientifically linked. The M&E plan will do so by testing and refining a special model which can later be replicated for similar projects or activities. For this reason, it contributes, in itself, to increased knowledge in the fields of biodiversity and agriculture. The importance IFC attributes to the innovativeness of the M&E plan, is reflected in a specific output related to M&E itself in the BACP logframe (Annex 8).
163. The M&E Plan is designed to assess both biodiversity and market impacts and the linkages between these. More specifically, the M&E Plan will assess:
a. The adoption and replication of better management practices (BMPs) by a range of market actors along the supply chain for the identified agricultural commodities and target countries;
b. The impact that these have on biodiversity conservation and social welfare in specific agricultural production landscapes containing globally-significant biodiversity; and
c. The extent to which the target commodity markets are being transformed, most notably through:
the promotion of BMPs by commodity sustainable roundtables/industry associations;
the increase in land area, crop volumes and revenues generated by commodity producers and processors that adopt these BMPs;
the co-financing provided by project implementers; the leverage of and additional private sector resources associated with the
replication of identified BMPs by the commodity roundtables/industry groups; and
44 While the M&E Unit reports to the PMU in its role to assist program management with M&E matters, the partner responsible for implementing the M&E component, Ecoagriculture Partners, will report to the IFC, who supervises its work, as per a grant agreement which will be separate from the PMU contractor’s.
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the associated incorporation of biodiversity concerns into investment screening and decision-making processes of selected financial institutions.
164. In a related manner, the BACP also has an explicit objective of promoting the implementation of credible, cost-effective M&E methods that are practical for private sector actors, and their biodiversity conservation partners, to utilize on a widespread basis. Therefore, the extent to which the information developed by the BACP is used and disseminated by the private and public sectors will be another indication of the BACP’s impact.45
165. There are inherent tradeoffs between the precision and cost of measuring and evaluating biodiversity conservation impacts on a large spatial scale. This M&E plan focuses primarily on a number of relatively inexpensive ‘proxy’ measures that will be complemented by some limited, more specific and intensive ‘outcome’ measures at both the project and landscape levels for a sample of supported projects, with the latter serving to demonstrate the validity of the proxy measures.
166. The central proxy indicator is compliance by BACP project partners with the sustainability principles and criteria developed by the participating commodity sustainable roundtables, or similar industry associations. Therefore, a critical dimension of the M&E Plan is its ability to assess the verification system affiliated with the concerned commodity roundtable/industry association to validate the claims made about the adoption and replication of BMPs by their members and then whether the BMPs are having a positive impact on biodiversity compared to the baseline.
167. The draft M&E plan differentiates between three types or BACP-funded projects:
a. Projects whose principal objective is exploratory or promotional; (e.g., that seek to determine how to encourage the adoption of new practices);
b. Projects that seek to achieve impacts on biodiversity within agricultural production areas, and in the broader landscape, confirmed by relatively simple assessment methods; and
c. Projects that seek to achieve biodiversity impacts within both agricultural production areas and the broader landscapes, that are rigorously evaluated for more in-depth understanding of the interfaces.
168. The first category of project will involve modest M&E activities that focus primarily on socio-economic and institutional/organizational issues, with an emphasis on ‘process’ rather than ‘impact’ indicators. The second category will entail more intensive M&E activities that include biodiversity conservation impact indicators. The third category will involve more rigorous M&E activities, including information about individual species, the use of control groups / sites, household-level surveys, etc.
169. In general, each BACP-funded project that involves significant on-the-ground activities (versus interventions designed to improve the sustainability criteria and principles of the commodity roundtables/industry associations or to influence policies and the broader enabling 45Adaptive management seeks to modify and fine tune project objectives, strategies, activities and the associated M&E measures in an iterative manner, based on changes in project conditions and circumstances and increased learning about implementation activities and their effectiveness and the assumptions that underpin the causal relationships between strategies and results.
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environment, etc.) will be required to clearly state the intended biodiversity conservation objectives and to provide indicators to demonstrate the achievement of these. Larger-scale projects will also need to include some outcome measures at the project and landscape levels, in addition to proxy measures, to demonstrate their impact on achieving their stated biodiversity conservation targets. These larger-scale projects will also be required to state clear causal relationships between the adoption of BMPs and biodiversity conservation, and the underlying assumptions, as a prerequisite for receiving financial support. At a minimum, these outcomes will need to include changes in habitat area and quality, if species-level M&E is not practical or appropriate.
170. Clear evidence that applicant proposals will promote biodiversity conservation without affecting social wellbeing will be a major factor used in the project screening and application process. The M&E Unit will provide input to this process and be available to provide technical assistance to successful applicants to strengthen the design and implementation of their M&E activities.
171. The M&E Unit will work closely with selected project partners to adapt the M&E plans to reflect each project’s main purpose and context. Similarly, BACP staff and the M&E Unit will work with the selected companies to develop data-sharing protocols that balance respect for the sensitivity of some proprietary business information and the need for public knowledge-sharing about the activities undertaken and the results achieved.
172. The draft M&E Plan covers the initial 5-year phase of the BACP and consists of baseline and mid-term evaluations complemented by on-going project-, landscape- and institutional-level monitoring activities. Each proposed project will need to include its own M&E component and corresponding budget.
N. Risk Analysis
173. The categories of risk in the Table below relate to the assumptions presented in the Logical Framework (see Annex 8). The cumulative overall risk of the Program may appear relatively high due to its innovative nature, but experimentation is required to test assumptions about the market and about industry roundtables. The reality is that trial and error is part of BACP design as long as trial is step by step and monitored as well as a “designer dress”. The risk analysis below represents IFC’s efforts to disaggregate the theoretical overall risks and then manage each specific risk as much as possible, within the boundaries of the experimentation mode. In addition, the Program’s overall approach is designed to reduce risk in three ways. First, through commodity-specific Market Transformation Strategies, the Program design builds in flexibility to test hypotheses and to respond to lessons learned and market changes, and thereby manage risks in real time. Second, BACP’s diverse portfolio of activities, across four commodities, and in three regions, limit the Program’s overall exposure. Finally, working with multi-stakeholder initiatives brings legitimacy to applying any consensus reached there.
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Table 2: BACP Risk Analysis
Risk Magnitude Impact Mitigation
Risks related to the enabling environment The roundtables fail to deliver
verifiable Principles and Criteria linked to meaningful biodiversity performance levels.
The roundtables fail to attract the combination of market actors they need in order to be effective.
Medium Decreased impact on biodiversity of global significance.
Decreased value of the roundtables as partners for BACP; program implementation becomes more difficult.
BACP will closely engage with the roundtables, will be able to help with recruitment of committed members (if necessary) and will support the participation of effective biodiversity experts in the technical working groups.
BACP will monitor the roundtables’ progress and will share lessons learned within each roundtable and with other commodity roundtables.
As appropriate, BACP will make use of its contacts to encourage new members to join the roundtables.
If the roundtable or equivalent fails despite efforts, BACP will drop the concerned commodity and inform GEF.
Government does not change policies that run counter to the BACP’s interests.
Medium It becomes more difficult for producers to adopt biodiversity-friendly practices (particularly relevant to land use).
The BACP will share the outcome of roundtable dialogue with relevant local and national departments, so that they can see both the biodiversity, economic, and social benefits of the BMPs proposed.
BACP will coordinate with the World Bank’s Agriculture Department on the biodiversity impacts of Agricultural policies promoted.
If the concerned policy change is crucial to BACP’s objective and concerned government does not act on it, BACP would consult with GEF and consider no longer working in that country.
Risks related to producers On-farm better practices may not
achieve the desired levels of biodiversity protection.
Medium Biodiversity protection is lower than expected.
The BACP will support the field-testing of BMPs, and their development.
The BACP will ensure that the roundtables monitor field-level performance and correct indicators and targets if needed.
BMPs will not be economic. Medium Producers would not adopt the BMPs.
The BACP will field-test BMPs, gathering clear data on economic costs and benefits.
The BACP will sequence BMPs in such a way as to make the transition easier and less costly for the producer.
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Risk Magnitude Impact Mitigation
Risks related to buyers Insufficient production volumes of
Better commodities.
Low Buyers lose interest in a product they cannot purchase.
Market signals from buyers should lead to the production of sufficient volumes of Better commodity.
Absence of a credible system to certify/verify Better commodities.
Medium Buyers lose interest because they are not certain of what they are actually purchasing.
Work within roundtables to ensure that the performance targets are back up by a credible verification or certification system.
Ensure that the system adopted is science-based and defensible.
Risks related to Financial Institutions Insufficient financing is made
available because FIs do not see a bankable proposition in BMPs (for those BMPs requiring higher investment levels).
Medium Lack of financing impedes the adoption of BMPs.
Prepare material specifically for FIs to document the financial benefits of BMPs.
Only support BMPs with clear financial (and biodiversity) benefits.
Risks related to currency / macroeconomic condition/ price volatility:
Diminishes producer’s risk appetite. Reduces financial viability of new
production methods. Encourages producers to engage in
more short-term planning.
Medium Fewer project opportunities.
Endangers financial viability of existing projects.
Lower leverage of GEF-funds.
Exploit price premium potential down the value chain.
Work with more vertically-integrated producers.
Risks related to replication:
Regional specificity of new production techniques.
Break-down / inoperativeness of commodity-wide sustainability alliances.
Lack of access to producers due to atomization or buyer / input supplier resistance.
Medium Fewer producers will obtain needed support.
Less overall impact.
Work with producers with experience in different regions.
Diversify contacts with replication agents (such as banks and NGOs).
Maintain a strong intra-commodity dialogue.
Risks related to Monitoring and Evaluation:
The Program is unable to gather adequate M&E data.
Low Program might not be able to gather sufficient information on projects and impact.
Develop a best practice streamlined monitoring and evaluation framework integrated with the work of commodity roundtables.
II. COUNTRY OWNERSHIP AND PARTNER SELECTION
A. Country Selection and Eligibility
174. BACP’s regional focus for each commodity was determined by overlapping major production areas with areas where there is biodiversity of global significance, potential for reducing impacts on biodiversity, and possibility for constructive dialogue with major players. All selected countries are GEF-eligible, and all ratified the CBD in 1994.
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175. Indonesia. Indonesia accounts for almost 40% of global palm oil production and almost 37% of global exports. It is also the third largest producer of cocoa (21%) and both commodities are expected to experience significant growth. As described in Section B (Program Rationale), the expansion of production areas threatens globally significant biodiversity. The Indonesian Government and local communities realize the importance of preserving biodiversity and an Indonesian Biodiversity Strategy and Action Plan 2003-2020 (supported by the GEF) has been adopted.46 The Indonesian government has recently given assurances to the World Bank that it would proceed on policy reform in the forestry sector, a sector interdependent with cocoa, palm oil, and other agricultural production. There remain indeed major issues related to deforestation (either legal or illegal) but oil palm producers and supply chain stakeholders have started to take into account the impact of their activity on environment and are implementing better management practices and promoting sustainable agriculture. The BACP is also consistent with the IFC’s strategy for Indonesia, which supports export-oriented companies in the agribusiness sector.47
176. Country ownership is further expressed by the Letter of Intent from the Indonesian Palm Oil Producers Association (GAPKI, see Annex 10) and by the increasing membership of Indonesian partners of all kinds in RSPO.
177. Malaysia. Malaysia is the world’s largest and exporter of palm oil, accounting for more than 45% of production and over half of the world’s exports. The economic prospects for the industry are good and Malaysian companies – which dominate world export-markets – are poised to seek further growth in Malaysia and overseas. In Malaysia, the last decade had seen rapid expansion but in view of the limited availability of new areas for plantation agriculture in peninsular Malaysia, future expansion of the oil palm will occur mainly in Sabah and Sarawak.48
These are both located in the Sundaland biodiversity hotspot,49 and land development - if not managed responsibly - would further threaten biodiversity of global significance. Other environmental impacts of the palm oil industry, such as chemical effluent discharge by oil palm refineries, threaten river ecosystem and the forests on the fringes of rivers. The government has identified these threats and has started to address them.50 Adoption of the RSPO voluntary criteria and BMPs would help mitigate these pressures.51 The Malaysian Palm Oil Association (MPOA) has written a Letter of Intent to partner with BACP, see Annex 10. Malaysian organizations are also active members of the RSPO.
178. Côte d’Ivoire and Ghana. The West African region is the most important producer of cocoa in the world. Côte d’Ivoire and Ghana dominate West Africa’s export market with 40% and 21% of global production, respectively. In both countries, cocoa production is likely to expand further into habitats with globally significant biodiversity. Governments in the region recognize the importance of biodiversity, but the issue of small producers income is, understandably, seen as an absolute priority. These governments however demand support to find ways to optimize 46 http://www.bappenas.go.id/index.php?module=ContentExpress&func=display&ceid=823&meid47 World Bank, Country Assistance Strategy for Indonesia, October 29, 2003.48 Teoh Cheng Hai (2002) The palm oil industry in Malaysia: From Seed to Frying Pan, report prepared for WWF Switzerland by Hon. Advisor, Plantation Agriculture, WWF Malaysia. 49 http://www.biodiversityhotspots.org/xp/Hotspots/sundaland/index.xml 50 Ministry of Environment and Tourism Sabah, legislation the Environment Protection Enactment 200251 Malaysian Ministry of Natural Resources and Environment: third report to the Convention on Biological Diversity (CBD), http://www.biodiv.org/doc/world/my/my-nr-03-en.pdf
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biodiversity whilst maintaining or increasing income, something that appears very challenging unless, precisely, the solution is market proof, as claimed by BACP’s approach.
179. In Cote d’Ivoire, for example, the national strategy seeks to protect the environment while increasing the standard of living of individuals and the profitability of enterprises. A reduction in habitat conversion is one of the national priorities. The promotion of better agricultural production methods, the adoption of sustainable agriculture techniques, and the promotion of biological fertilizers are also included in the national work program.52 However, the Government of Côte d’Ivoire acknowledges that knowledge about, and sensitivity towards, environmental management is low, that institutional capacities are limited and that further research is needed, notably on the development of “win-win” activities. The private sector and global supply chains can play a crucial role in this area and cocoa is a strategic production in Cote d’Ivoire.
180. Despite political uncertainty/instability and the fact that IFC does not operate in Côte d'Ivoire for the time being, it is important for Côte d'Ivoire to remain within the BACP target countries, for several reasons. The political situation is likely to change in course of BACP’s ten-year lifetime, and the cocoa business still operates in the country. Indeed, cocoa from Côte d'Ivoire remains essential to the chocolate industry, and maintaining some private sector activity is a good way to help with the political crisis. BACP’s involvement was welcome by the GEF Focal Point from Côte d'Ivoire and we have potential BACP partners (e.g. ECOM, a trader) who is willing to operate and implement a relatively large project there. IFC believes that there is more value in implementing these activities with willing partners than not to. Obviously, the full situation will be reassessed at the moment of approving the project(s).
181. In Ghana, BMPs such as the control of use of agrochemicals, sustainable land use, agro forestry practices, control of bushfires, and zero tillage agriculture are already being promoted in some areas to mitigate negative impacts on biodiversity.53 The private sector and global supply chains can play a crucial role to reinforce these. The BACP’s Market Transformation Strategy is fully consistent with the World Bank’s Country Assistance Strategy for Ghana which acknowledges the importance of enhancing marketing and processing of agricultural commodities, improving land use, and fostering environmentally-friendly agronomic practices, and which points to the need for agricultural development strategies to be guided by market demand and by their environmental soundness.54 In addition, the Ghana Cocoa Board (Cocobod) has expressed interest in the BACP, inter alia, because BACP addresses the mainstream as opposed to only working within niches.
182. Brazil. Brazil is the world’s largest producer and exporter of sugar (21% of global production and 45% of global exports). With more than 30% of global exports, it is also the second largest producer and exporter of oil and meal from soybean, and expected expansion in both commodities is likely to result in a loss of biodiversity of global significance. The Cerrado, where most current and planned sugarcane and soybean plantations are located, has biodiversity that rivals equivalent areas of Amazonian forests, but only 1.5% of such lands are protected by federal reserves. Therefore, the Cerrado is easily converted into vast expanses of soybean fields or sugar plantations. Protected areas are still insufficient to ensure the adequate protection of biodiversity and some biomes, including the Cerrado, receive little attention. Furthermore the
52 Côte d’Ivoire, National report on Biodiversity to CBD, 16 November 2005.53 Republic of Ghana, third national report on Biodiversity to CDB, October 3, 200554 World Bank, Country Assistance Strategy for Ghana, February 20, 2004.
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Government of Brazil recognizes that, among others things, the limited inclusion of biodiversity issues in agriculture, weakened institutions, lack of capacity, and unsustainable production standards are causing the further loss of biodiversity. Voluntary initiatives taken by large players in the soybean industry and the implementation of better production methods could play a significant role in addressing these causes. Brazil is also a large producer of cocoa, a native plant from central America and the Amazon. Although disease seriously affected production in recent years, Brazil has the ambition of regaining a leading role in cocoa production. The Brazilian Corporation of Agricultural Research (Empresa Brasileira de Pesquiza Agropecuaria - EMBRAPA), which will be one of BACP’s main partners in Brazil, has expressed interest in cocoa projects, in addition to soy and sugarcane.
183. As soy has started encroaching into the Amazon region, the largest reservoir of biological diversity in the world, the Associação Brasileira das Indústrias de Óleos Vegetais – ABIOVE (Brazilian Association of Vegetable Oil Industries) –one of the founding members of the Roundtable for Sustainable Soy-- and the Associação Nacional dos Exportadores de Cereais – ANEC (National Association of Grain Exporters) and their respective members have committed in October 2006 to the implementation of a program whose objective is to not trade soy that come from areas within the Amazon biome (that be deforested after July 24, 2006: date when such commitment was announced).55 This two-year initiative seeks to reconcile environmental conservation with economic development, through the responsible and sustainable use of Brazil’s natural resources. During this period, the sector is committed to working with Brazilian government entities, and entities which represent rural producers and society to: (1) prepare and start implementing a plan that includes an effective mapping and monitoring system for the Amazon biome; (2) develop strategies to encourage and move soy producers to comply with the Brazilian Forest Code; and (3) work together with interested sectors and the governmental entities to develop applicable rules regarding land use in this region. This initiative represents a particularly interesting opportunity for BACP.
184. The BACP will also build upon the overall World Bank/IFC strategy in Brazil that aims to support the growing momentum towards socially responsible activities within the Brazilian private sector, and in particular in certain biomes such as the Amazon, the Cerrado and the Mata Atlantica. This involves support to firms committed to environmental and social sustainability, and to socially-oriented entrepreneurship, and in particular, support to agribusiness companies.56
The BACP is also consistent with Brazil’s National Biodiversity Strategy, particularly with respect to its related agriculture programs that seek to promote integrated sustainable rural development and that prioritize, inter alia, the implementation of Better Management Practices (such as the restoration of degraded areas, recomposition of riparian forests, protection of fragile areas, promotion of agro-forestry and organic agriculture practices, and the implementation of demonstration projects on integrated pest management).57
185. Given the global nature of commodity markets, BACP will also engage with demand-side market actors (buyers, retailers, etc) wherever they may be. While considerable purchasing power lies in industrialized economies, Brazil itself, China and India represent a large and growing demand for commodities, and BACP will make a special effort to reach out to buyers from these countries. As the Program evolves, BACP will gradually seek to also engage with
55 See www.cargill.com and www.abiove.com.br 56 World Bank: A more equitable, sustainable and competitive Brazil – country assistance strategy FY2004-200757 Brazil, Ministry of Environment, third national report to the Convention on Biological Diversity, September 2005.
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more producing countries. Likely candidates include Argentina and Paraguay (soy and sugar), South African (sugar) Nigeria and Cameroon for (cocoa, palm oil).
B. Country Endorsement
186. The IFC has obtained letters of endorsement from the GEF Focal Points in Brazil58, Ghana, Côte d'Ivoire, Indonesia and Malaysia. As the BACP activities develop in additional countries, the local GEF Focal Point will be notified and engaged to ensure a strong country-level awareness and endorsement, as well as to ensure that the funded projects are national priorities that are tightly anchored in the local environmental policies and legislations. This will foster local ownership of the Program and promote a greater country level awareness of BACP and its objectives. No countries will be targeted without endorsement.
187. It is worth noting that Brazil has signaled a particular interest in supporting the engagement of the private sector in the implementation of the CBD, and is showing a strong commitment towards orienting public policy in that direction. This is evidenced by the organization of the CBD’s CoP8 (Curitiba, Brazil, March 2006) which focused on business engagement, and a number of its main features and events. The government of Brazil has also been a strong presence in the meetings of the Roundtable for Responsible Soy.
C. Partner Selection
BACP and the Private Sector
188. Table 3 indicates that the private sector has stewardship over the 125 million hectares that are dedicated to the BACP’s target commodities. It is thus logical that the private sector is a key partner for the program. In the program development phase, the BACP generated contacts with the private sector through the roundtables and through the IFC’s existing client relationships. The BACP is poised to enter into effective and meaningful partnerships with private sector actors who have shown a willingness to lead on sustainability issues (see Annex 6 for examples). BACP will not channel GEF funds to directly subsidize private sector firms; BACP funds may be channeled through the private sector, in a transparent and verifiable manner, to a specific biodiversity enhancing activity or project.
58 The Brazil focal point endorsement is conditional on the focal point being allowed to approve individual projects that will take place in Brazil. BACP will work with the Brazilian government to find suitable modalities to operationalize this request that be consistent with BACP’s design and stated objectives.
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Table 3: Land Use, Production Volumes, and Annual Value of BACP's Target Commodities
Land use (million ha)
Global production(million tons)
Producer production value (US$ billions)
Land use in BACP target countries (million ha)
Palm oil 8 34 9 4.9Cocoa 7 3 2 4.3Soybean 90 185 31 13.6Sugarcane 20 110 26 4.8Total 125 332 69 27.6Sources : PwC/Cirad/University of Wageningen – BACP report – phase 1; Jason Clay, op. cit.
189. Private sector actors who receive support from the BACP will need to meet the following criteria:
a. A demonstrated commitment to supporting the adoption of BMPs, through, for example, participation in relevant roundtables, the adoption of internal or external environmental screening criteria, the dedication of resources and putting in place systems to serve this market, and demonstrated leadership in their field;
b. Technical and/or financial capacity to deliver sustainable projects with GEF benefits, that generate no adverse environmental or social impacts;
c. Excellent relationships with local stakeholders, especially smallholders;
d. A commitment to transparency in the execution of the TA project;
e. A willingness to share the experience gained through the TA, throughout industry; and
f. The ability to contribute leverage of at a ratio of at least 1:2. Matching funds will come from the private sector, NGOs, and bilateral donors.
III. PROGRAM & POLICY CONFORMITY
A. Program Design and Target Activities: role of the private sector
190. The BACP is a market-based, private-sector-led program. All of its activities target the private sector, either directly through site-specific projects, or indirectly through, inter alia, support to roundtables and development of BMP Case Studies.
191. As such, the BACP’s design and target activities are consistent with the decision taken by the GEF Council in its November 2005 meeting: “The GEF Council, having reviewed document GEF/C.27/13, GEF Strategy to Enhance Engagement with the Private Sector, underscores the importance of strengthening the engagement of the private sector in the work of the GEF.”
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192. The above-mentioned Strategy reviews the GEF’s engagement with the private sector.59
The BACP is fully consistent with the observations made in the report.
The Strategy notes that:
Only by engaging productively with the private sector is it possible to mitigate the potentially very harmful footprint of companies and individual private operators that impact the environment through:(a) Sourcing raw materials for production and consumption;(b) Managing landholdings;(c) Producing waste, pollutants and emissions that might be released into the surrounding environment;(d) Supporting supply chain partners (and their associated practices); and(e) Influencing local social and economic development (e.g., migration of people as a result of commercial operations).
Items (a) through (d) are directly relevant to the BACP.
193. The Strategy further notes that GEF biodiversity projects involving the private sector present the following weaknesses:
(a) Private sector engagement in the biodiversity portfolio is modest in scope and scale, and concentrated mostly at the farmer level. There is little SME involvement and an absence of participation by national companies, multinational companies and umbrella trade associations;(b) There are few projects with a focus on market transformation and public-private partnerships;(c) The focus of large, integrated production landscape projects has been more on public sector activity and less on market-based interventions;(e) Systematic assessment of results and gathering of success stories has been inadequate;(g) Little engagement of the private sector has occurred on the demand side. There has not been a project focus on product demand, nor analysis of markets and economic opportunities to stimulate sustainable production of goods; and(h) Experience to date has been marked by complexities in setting targets and measuring for market transformation within a project.
194. The BACP should help address these weaknesses in the GEF portfolio, by (a) a strong participation from national and multinational companies, and from trade associations; (b) a market transformation approach; (c) a focus on market-based interventions; (e) the systematic documentation and dissemination of the business case for BMPs; (g) targeted demand-side outreach; and, (h) a streamlined M&E system.
59 GEF/C.27/13, GEF Strategy to Enhance Engagement with the Private Sector, GEF Council document, November 8-10, 2005
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B. Rationale for GEF Involvement
195. Consistency with GEF priorities and policies. The BACP is fully aligned with the GEF Strategic Priorities approved by the GEF Council in its May 2003 meeting in the focal area of biodiversity for the third replenishment cycle. In particular, the BACP addresses two of the GEF’s four strategic priorities in this area, notably:
a. Mainstreaming Biodiversity in Production Landscapes and Sectors. The BACP is directly designed to engage in the three activities recommended by the GEF Council in this area: (a) facilitate the mainstreaming of biodiversity within production systems; (b) support for demonstration projects with high replication value; and, (c) develop market incentives measures; and
b. Generation and dissemination of best practices for addressing current and emerging biodiversity issues. The BACP will create and disseminate biodiversity best practices in the agricultural commodities sector and build on the Program’s lessons learned to improve the sustainability of the BACP’s impact.
196. The BACP will reduce biodiversity impacts on a landscape level, in such diverse landscapes as Malaysian and Indonesian lowland forests, the lowland Guinean forest in Ghana and Côte d'Ivoire, or the Brazilian Cerrado woodland. The programs is consistent with GEF Operational Program 3 (forest ecosystems), and, because of reduced levels of agricultural runoff and erosion, with OP 2 (coastal, marine, and freshwater ecosystems). The BACP is also consistent with OP 12 (Integrated Ecosystem Management), OP 14 (Persistent Organic Pollutants) and OP 15 (Sustainable Land Management). In addition, the BACP will have a beneficial impact on the GEF objectives delineated in Operational Program 12 (Operational Program on Integrated Ecosystem Management), Operational Program 14 (Operational Program on Persistent Organic Pollutants) and Operational Program 15 (Operational Program on Sustainable Land Management).
197. The BACP also responds to the recommendation by GEF’s second Overall Performance Study (OPS 2) to engage more directly with the private sector in the area of biodiversity. As stated in this report “conservation efforts in production landscapes are a growing priority, reflecting the predominance of this land use. In this context, engaging economic actors— from small farmers to commercial firms—will play a critical role, for which economic instruments and market transformation approaches are powerful tools. Yet GEF efforts to use these approaches within the biodiversity portfolio have so far been very limited, representing a largely untapped opportunity.”
198. Moreover, the BACP’s approach is fully consistent with the interim GEF report on Mainstreaming Biodiversity in Production Landscapes and Sectors prepared by the Scientific and Technical Advisory Panel. The report specifically points to “improving production practices” as one of the four priority areas for GEF intervention.
199. As mentioned above, the BACP is fully consistent with the GEF strategy to enhance engagement with the private sector in particular with respect to the strategic focus on mainstreaming projects in agriculture as a priority sector with relevance to all globally important biomes and with respect to the strategic use of non-grant financial instruments. The BACP is specifically mentioned in the document as a vehicle for the strategy’s implementation.
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200. Finally, the BACP’s project screening process (see Section K) will ensure the GEF-eligibility of individual projects.
201. Consistency with the Convention on Biodiversity. BACP is also well aligned with the Convention on Biodiversity (CBD). Objective 4.4 of the Strategic Plan of the Convention on Biological Diversity is that “key actors and stakeholders, including the private sector, are engaged in partnership to implement the Convention and are integrating biodiversity concerns into their relevant (…) programmes”. A recent note issued by the CBD secretariat on engagement of the private sector includes a draft decision, to be discussed at the forthcoming CoP 8 in Curitiba, Brazil (March 21-31 2006), which “5. Invites businesses (…) to develop and promote the business case for biodiversity, to develop and promote the wider use of good practice guidelines, benchmarks, certification schemes and reporting guidelines and standards (…).”60 These recommended activities are central to the BACP.
Incremental Cost
202. Baseline. Without GEF support, the agricultural commodity sector would probably experience a slower transition to more sustainable production practices as a result of regulatory pressures from local governments and in an effort to service the very small, but growing, consumer demand for more low-input agricultural products, mainly in developed countries. The work of the roundtables is ambitious, but can be slow-going. Meanwhile, irrecoverable biodiversity will be lost due, inter alia, to soil erosion, water contamination, loss of habitat, and pesticide overuse. Given the extent of the land devoted to agricultural commodities, the scale of these losses to global biodiversity would be enormous. Without GEF support, it is also unlikely that biodiversity of global significance would be specifically factored into the definition and implementation of BMPs.
203. GEF Alternative. The GEF Alternative constitutes a market acceleration initiative, which will increase the pace and scope of this transformation. In addition, it should help to save significant global biodiversity, by applying a specifically targeted TA which constitutes an incremental investment in the market transformation process. Like any market transformation initiative, GEF support will help remove the existing barriers and push private sector players to focus their efforts in a direction consistent with the CBD and the GEF. In addition, the BACP’s funds will ensure that the roundtables maintain a focus on biodiversity of global significance, and that impacts are addressed as effectively as possible.
For a more detailed analysis, see Annex 9, Incremental Cost Analysis.
Global Impact
The BACP will have a global impact in at least three fundamental aspects:
204. Commodity-wide global changes. The Program will accelerate the mainstreaming of specific biodiversity-friendly production changes in its target commodities on a global scale. This will be achieved by concentrating the Program’s resources on a narrow set of commodities and production changes and working with major players who have the ability to replicate
60 IFC participated in a CoP 8 Preparatory meeting in which this draft decision was discussed, and contributed to meeting workshops on commodities and on financial institutions.
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successful changes on a large scale. The program’s four target commodities are produced in Africa, Asia, and Latin America. Over 125 million hectares worldwide are allocated to their production, and this area is rapidly increasing. Therefore, even a small improvement in production practices, when multiplied over the area concerned, will have a global impact on biodiversity. In addition, conversion of natural habitat to agriculture is a potential major impact on biodiversity of global significance. The BACP will encourage expansion into suitable degraded or abandoned lands rather than natural habitat, thus lowering the rate of conversion of natural habitat.
205. Specific, globally significant, endangered biodiversity. In certain cases, site-specific activities will target the change of a production method that represents a specific threat to globally valuable biodiversity in a particular ecosystem (for example, a project leading to the establishment in oil palm landscapes of wildlife corridors for the orangutan).
206. Global knowledge. The BACP will contribute significantly to the still limited knowledge of complex agricultural eco-systems. In particular, thanks to its monitoring and evaluation activities, the Program will generate a wealth of reliable quantitative and qualitative information on the impact of alternative production methods. The M&E plan pays particular attention to linking the adoption verification and/or certification systems to biodiversity impacts on production landscapes. BACP expects that this groundbreaking work will be applicable to other commodities as well. Close collaboration with industry roundtables will ensure that information generated is disseminated and used.
C. Sustainability
207. Sustainability is intrinsically part of the BACP’s market transformation goals. The BACP aims to move the market to a position where BMPs (such as environmental sustainability) are incorporated in a financially sustainable manner into commodity markets’ flows of goods and of finance. The commercial viability of the changes to biodiversity-enhancing production methods is inherent in the Program design. The Program will only promote BMPs that have a sound business logic.
208. Long-term sustainability of any agricultural operation depends on environmental practices, economic viability, and social factors. The BACP will take a holistic approach to sustainability, paying attention to all three of these factors. Though not specifically focused on social issues, the social impact of BACP-supported projects will be evaluated and addressed, as indicated in the Project Selection Criteria; at a minimum, projects must not have any negative social impacts.
209. It is important to point out that BMPs themselves, and the resulting biodiversity benefits, are often intertwined with social benefits. For example:
a. The reduced use of toxic agrochemicals benefits local and downstream biodiversity, and therefore benefits farmers and agricultural laborers and their families living in neighboring and downstream communities;
b. Reduced soil erosion and effluents improves freshwater habitat, benefiting those who depend on fish and other aquatic organisms for protein;
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c. Retiring marginal agricultural lands on existing farms results in increased natural habitat for wildlife, reduced erosion, wildlife corridors and protection of riparian areas. In addition, retiring such lands helps farmers produce more on the remaining land, using fewer inputs, having fewer impacts and higher net profits. The retired lands can also be assets that increase over time (such as sequestered carbon, trees to sell, fuel wood, and payments for environmental services such as water);
d. IPM and BMPs that generally are more wildlife friendly are cheaper for producers than purchased pesticides; and
e. Improved organic matter increases soil health and habitat for other species, but also increases productivity, reduces the use of inputs (such as fertilizers, pesticides, water, labor, and machinery) and increases net profits.
210. The Program’s sustainability is also buttressed by the fact that the use of BMPs enhances long-term farm lifetime and viability. In particular, BMPs that maintain or improve soil fertility help a farm remain productive over time. While no BMP can guarantee that a given farm will always be a viable producer of any given commodity, BMPs can guarantee that, all other things being equal, the farm can be run as profitably as possible, thus giving it a better chance of success. Furthermore, producing or enhancing on-farm assets (trees, soil, and wildlife) can translate directly into increased income for the farmer.
211. The sustainability of agricultural soil is an unglamorous but very important benefit of the BACP. Practices promoted by the BACP will help maintain healthy soil. Be it in protected areas, natural habitat, or farms and ranches, most biodiversity and biomass exists in the soil, not on or above it. It is upon this biodiversity and biomass that life on Earth is built. It is vital that the soil remains living even in productive areas. Vast areas of the United States, Central and South America, North Africa, Europe and Asia were farmed previously but are no longer farmed today because of loss of soil productivity.
212. Finally, the BACP will follow both the IFCs and GEF best practice guidelines on sustainability in order to ensure both IFC commitment and market acceptance for the long-term continuation of Program activities (see Annex 11, Compliance with IFC’s Environmental and Social Safeguard Policies – Environmental and Social Compliance Memo).
D. Replicability
213. Replicability is one of the explicit goals in the design of the BACP project-level initiatives. Indeed, it is one of the criteria on which proposed projects will be assessed. The Program’s emphasis on the financial sustainability of site-specific projects (Component 2: Support biodiversity-friendly production practices), further maximizes replicability potential on both a regional and a commodity-wide level. Projects are intended to assume the innovation risk/costs of new production methods to encourage replication by “second-movers”.
214. Activities promoted under Component 3 (Increased demand for biodiversity-friendly commodities) will depend on replication being successful. Only if demand for biodiversity-friendly commodities becomes mainstream, can the Program meet its goals.
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215. Similarly, the BACP will do its utmost to ensure that the Component 4 Activities (Finance) are taken up by a majority of FIs. For this component (as well as the others) the Program will work with market leaders, whose practices are watched and emulated by others in the industry.
216. Replication is the essence of the TA activities in Component 1 (Creating an enabling market environment), which are intended to promote replication on a commodity-wide basis (within BACP’s target countries, and in other countries as well).
217. The lessons learned by the BACP in a given commodity, disseminated through the above-mentioned replication plans, may also have great replication value for other agricultural commodities, through the roundtable process. In fact, there is already a plan for the soy and sugar Roundtables to work together on Principles and Criteria related to habitat loss. This was stated explicitly at the January 2007 BSI Steering Committee meeting.
218. Finally, the innovative systems, developed via the M&E Plan, for establishing links between verification and/or certification systems and their impacts on biodiversity in production landscapes will be applicable to commodities and projects outside the BACP.
E. Stakeholder Involvement
Stakeholder involvement plan
219. BACP is a Program that will fund projects implemented by third parties. As such, the Program depends on stakeholder involvement for its success. A variety of different stakeholders will be affected by or involved in the Program’s activities. These include private sector producers, traders, food manufacturers and retailers, financial institutions, civil society (such as NGOs and academics), local and national governments, commodity roundtables, and bilateral and multilateral organizations, research institutions and local communities.
220. BACP is entirely based on already existing global, multi-stakeholder groups and processes: the commodity roundtable processes or equivalent groups (around the World Cocoa Foundation, for instance, in the case of cocoa. During the preparation phase, when commodities were selected for BACP, selection criteria included the representation at these roundtables, in typology, quality and quantity, as well as the degree and quality of such processes’ organization and potential to succeed. In a way, the roundtable processes (or the equivalent for cocoa) are to be seen as “built-in” stakeholder involvement plans, and implementation of such, and BACP simply would not exist without them. Of the four commodities contemplated in BACP, palm oil is the one for which the roundtable process is the most advanced. As part of BACP development, IFC has started working with the secretariat of the RSPO as well as with representatives of specific stakeholder groups (palm oil associations in Malaysia and Indonesia) and individual stakeholders. This was strengthened during appraisal. For example, at the third General Assembly of the RSPO (November 2006), members approved an IFC motion to establish a Technical Committee on Biodiversity, which would be a forum for resolving the biodiversity-related challenges to implementing the RSPO Principles and Criteria on the ground.
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221. IFC has also been involved in developments related to the Roundtable for Responsible Soy since its inception. IFC actively supported the first roundtable meeting, supported the technical/scientific workshop held in Argentina in April 2006, and participated in the second formal Roundtable meeting, held Paraguay in August, 2005, which resulted in the mandate (“Asunción Declaration”) to incorporate the RTRS as a membership organization with multi-sectoral participation, an organizational structure, and initiating the development of responsible soy value chain criteria, based on the main impacts agreed upon in April 2006. In November 2006, IFC attended an Organizing Committee meeting in Rolle, Switzerland, at which the Roundtable for Responsible Soy was formally founded as a legal institution, and a follow-up donors meeting in Berlin, hosted by WWF-Germany and attended by potential donors from the Dutch, Swiss, and German governments, among others.
222. IFC is also involved in the sugar roundtable (the Better Sugarcane Initiative - BSI), which is at an earlier stage than its soy and palm oil counterparts. IFC attended most BSI meetings as a member of the Steering Committee, as well as the January 2007 Steering Committee meeting 61, in London. IFC, through funds from the South African Technical Assistance Trust Fund, will implement a study on existing Better Management Practices in sugarcane rearing and milling, and in management of cane by-products (expected budget: US$ 250,000).
223. Through the IFC’s participation in different commodity roundtables, the BACP will have direct access to the primary players in its target markets: for example, via the membership to the RSPO, which today represents one-third of the globally traded production of palm oil, and includes over 140 important actors in all the categories of stakeholders mentioned above.
224. Private sector stakeholders (producers, traders, manufacturers and retailers, and FIs) will be engaged through roundtables, which will enable them to learn about the Program, about the practices it is supporting, and about opportunities for projects. In addition, some companies and FIs that have a relationship with the IFC could be engaged though that relationship. Similarly, the BACP will reach out to NGOs through the roundtables as they are members and follow new developments closely.
225. Approximately one-third of palm oil production comes from smallholders, and this figure is expected to grow; nearly all cocoa produced in West Africa (and in the rest of the world) comes from small farms. For reasons of scale, the BACP will not work directly with individual smallholders. However, in order to reach this important segment of producers, the BACP will work through the smallholder working groups of the roundtables (e.g., the RSPO’s smallholders task force), and with larger organizations, such as mills (palm oil, sugar) or traders (cocoa). These larger organizations typically have, for reasons of geography and harvest perishability, a monopsony or otherwise very close relationship with surrounding smallholders. Furthermore, the relationship is one of interdependence; the smallholders need to sell to the mill/trader in order to earn a living, but the mill/trader depends on the smallholders in order to remain profitable. Therefore, these larger organizations have an incentive to build and maintain biodiversity preservation capacity among their surrounding smallholders. In its latest meeting, the RSPO verification working group decided to revisit the group’s work to better include smallholders’ interests, and in particular envisaged that the unit of verification for the Principles and Criteria
61 This time as an observer.
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would include the supplying smallholders together with the larger plantation (as opposed to just the larger plantation on its own) 62.
226. Local communities and stakeholders will be crucial at the specific project level. The participation of, and consultation with, these local players will play a vital role given their knowledge in the areas of local biodiversity and production methods. Transparency with local stakeholders will also be important to maximize buy-in and ownership. Each BACP project will need to determine a framework of collaboration with local stakeholders prior to project implementation, as stated in the project criteria in Section K.
227. As the BACP is a market-driven, private-sector-led Program, government only plays a role in implementation where specifically engaged in Component 1 activities, when certain policy changes are needed to make progress. In addition, the information published by the Program will be explicitly shared with agricultural and environmental agencies and the local and national level, and the practices implemented by industry leaders should eventually lead to the government raising minimum environmental standards for the industry as a whole.
228. The program will keep a database of stakeholders for each commodity, and will maintain communications with them through roundtable or other meetings, and through a BACP newsletter and web site.
Stakeholder engagement during program development .
229. Stakeholders were closely involved in preparing and appraising the proposal. This is evidenced in part by the sixteen letters of intent from potential industry, NGO, and other partners, listed in Annex 10. IFC presented BACP in meetings of the Roundtable for Sustainable Palm Oil (RSPO), of the Better Sugarcane Initiative (BSI), and of the World Cocoa Foundation, and participated in meetings of the Round Table for Responsible Soy (RTRS). In addition, the BACP preparation team went on mission to Malaysia and Indonesia to meet with specific industry members (Lonsum, Hoest, Bakrie Sumatra, etc), and has had further discussions with many players, including Cargill, Unilever, Migros, Marks and Spencer, Mars (Masterfoods), Hershey, the Coca Cola Company, Tate and Lyle, Wilmar, HSBC, Rabobank, JPMorgan, International Institute of Tropical Agriculture / Sustainable Tree Crops Program, ProForest, EMBRAPA, Conservation International, WWF, a number of social NGOs, etc. Well over 100 individuals and organizations were consulted in the preparation of the program, a full list is on file with IFC and available upon request.
IV. FINANCING AND COST EFFECTIVENESS
A. Program Budget
230. The total budget for the first phase of the BACP is US$ 19,862,000, including US$ 7 million from the GEF, US$ 1,000,000 of initial co-finance from IFC, US$ 200,000 of initial co-finance from the M&E Unit (Ecoagriculture Partners) and a minimum of US$ 11,662,000 of subsequent co-finance. If Phase 1 shows success of the BACP model, a second-phase request will be made for an estimated additional US$ 12 million. This Section discusses how the Phase 1
62 This option has been envisaged but no conclusion has bee drawn yet at the time of writing this Program Appraisal Document
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budget will be allocated. The specific uses of funds for a second phase will be based on the status of market transformation for target commodities at the time requested.
231. It is important to stress that the BACP budget is not fixed. At any time, funds can be added to the core budget of US$ 8M and in this way be put to work and leverage at least twice as much in co-finance to define, test and replicate indicators and BMPs. However, the Phase 1 core budget of US$ 8M was considered by IFC as the minimum under which the BACP design cannot function.
Allocation among commodities. Of BACP’s target commodities, palm oil is furthest ahead in the development of biodiversity performance levels and indicators. Sugarcane, soybean, and cocoa are a few years behind. For palm oil, BMPs are known, discussions within industry about the importance of biodiversity are at a mature stage, and there exist Principles and Criteria (palm oil) that address biodiversity. In short, the market is sufficiently advanced to be ready to absorb larger amounts of funding to support the mainstreaming of biodiversity-friendly practices. Section I, Program Activities, discusses in detail the types of activities that this budget will support. Thus, at this point, the budget allocation for palm oil (US$ 2 million, or 30%) is larger than that for the other commodities (US$ 1.3 million, or about 22%).
232. Performance targets for biodiversity-friendly sugarcane and soy production were at a more preliminary stage at program preparation but made progress during appraisal. Though there is not yet agreement on specific indicators, the roundtables are establishing technical working groups to identify indicators and verifiers for producers. For cocoa, indications early in the program development that a roundtable might be forming have not yet borne fruit, and there is of yet no agreement on the environmental impacts of cocoa production and on how to optimize them, but a group of actors representing a sufficient proportion of cocoa buyers have shown interest in addressing the main social and environmental issues in the cocoa chain.
233. In order to retain the flexibility to respond to new opportunities and to changes in market conditions, the BACP management reserves the option of reallocating the budget among its target commodities, via modifications in the Market Transformation Strategies.
234. Management costs. The management budget is based on an estimate of the cost of the PMU. The PMU will be selected on the basis of a competitive bid process. Therefore, depending on the selected bid, the final management cost, and the allocation of the management budget between the PMU and the Local Focal Points may be different from what is presented in the Table. In addition, since BACP will follow adaptive management, certain aspects may evolve in one way or another as implementation unfolds.
235. M&E costs. The M&E budget allocation amount will cover the design and implementation of the detailed Program M&E plan, and the design and implementation of the mid-term review, at the end of Phase 1. GEF will be contributing US$ 500,000, Ecoagriculture Partners has committed to contributing an additional US$ 200,000, and a further US$ 62,000 will be raised jointly by IFC and Ecoagriculture Partners. A detailed breakdown of the M&E budget is contained in Annex 7, Monitoring and Evaluation Plan.
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Table 4: Uses and Sources of Funds for Phases 1 and 2 of BACP (in US$)
Sources Total funds GEF funds Initial co-
financeSubsequent Co-Finance
GEF funds Subsequent Cofinance
Phase 1&2 Phase 1 Phase 1[a] Phase 1 [b] Phase 2 Phase 2Grants for commodity projects
46,800,000 5,800,000 11,600,000 9,800,000 19,600,000
Management 3,400,000 700,000 1,000,000 1,700,000
M&E 1,262,000 500,000 200,000 62,000 500,000 Total 51,462,000 7,000,000 1,200,000 11,662,000 12,000,000 19,600,000PDF-B funds [c] 486,538 399,288 87,250
Total Including PDF-B
51,948,538 7,399,288 1,287,250 11,662,000 12,000,000 19,600,000
Phase 1 only, GEF + co-finance
19,862,000
[a]: Initial co-finance is defined as co-finance that will be confirmed by the time of CEO endorsement. See Table 5 below for detail of sources of initial co-finance.
[b]“Subsequent co-finance” is defined as funds which will materialize after BACP is approved by GEF and IFC, in particular funds from the project proponents: communities, NGOs and the private sector. Actual subsequent co-finance may be higher; for example, several of BACP’s sample projects carry leverage of 1:3.
[c] Cofinance on PDF-B funds includes US$ 85,000 from IFC in travel costs and non GEF paid staff time, and US$ 2,250 from Ecoagriculture Partners, also in staff time.
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Table 5: Detailed Implementation Budget for BACP, Phase 1 (in US$).
Total BACP Phase 1 Budget
Incl. initial and subsequent cofinance
GEF funds Phase 1
Initial Co-FinancePhase 1
Subsequent Co-Finance
Phase 1
Program implementation [a] 17,400,000 5,800,000 11,600,000 Palm oil 2,000,000 Cocoa 1,400,000 Sugarcane 1,200,000 Soy 1,200,000
Management [b] 1,700,000 700,000 1,000,000
M&E [c] 762,000 500,000 200,000 62,000 Total 19,862,000 7,000,000 1,200,000 11,662,000
Notes:
[a] Allocation among commodities is subject to change as specific commodity Strategies are elaborated, depending on evolution of sustainability dialogues and Roundtables..
[b] Initial co-finance of US$ 1,000,000 from IFC’s Technical Assistance Trust Funds and Sustainability Business Innovator ; see letters of commitment attached to CEO Endorsement Request. For the sake of clarity, this table presents IFC’s funds as being applied to the management component of BACP, but the funds might also be applied to the grant-making facility. IFC’s co-finance will be front-loaded in years 1 and 2.
[c] BACP’s M&E Unit (Ecoagriculture Partners) has committed to initial co-finance of US$ 200,000. A further US$ 62,000 will be raised during implementation.
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B. Basis for Possible Second Phase of BACP
235. The first Phase of BACP is expected to last four to six years. The request for the second phase will come following the mid-term evaluation, which will be held within four to six years of BACP’s inception. The mid-term evaluation will measure the BACP’s performance against the market transformation indicators presented in the Log Frame and in Annex 7 (Monitoring and Evaluation Plan), as well as against additional indicators that might have been identified in the Market Transformation Strategy.
236. As part of the mid-term evaluation, the M&E Manager will work with the PMU to define a number of factors to consider, referred to as ‘triggers’, to assess the merits or otherwise of continuing the BACP. While the selection of these triggers will evolve during the course of project implementation, some leading candidates include the following:
a. The extent to which project partners are making progress towards stated targets for biodiversity conservation, social welfare and market results, with primary focus on process and intervention indicators regarding BMP adoption and replication;
b. The extent and quality of M&E activities implemented and the use of information generated to inform production decisions by project partners; (both within and beyond the project sites)
c. The extent to which commodity roundtable/industry associations effectively include the goals and objectives of the BACP within their sustainability criteria and verification systems; the extent to which they promote the adoption and replication of BMPs by their members, and the associated credibility of such claims;
d. The level of co-financing provided by project partners and participating commodity roundtables/industry associations and their members;
e. The extent to which other commercial actors along the commodity supply chains incorporate the BACP goals and objectives into their operations;
f. The extent to which project partners and participating commodity roundtables/ industry associations engage relevant government and donor decision makers and influence sector policies, regulations and their enforcement, and public investments; and
g. The perceived ability of the project partners and the participating commodity roundtables/industry associations to achieve the Program’s goals.
237. Making this determination is a clearly a complex undertaking that will involve the consideration of many interconnected issues and factors, and a number of stakeholders. It will also be informed by the initial results of applying the M&E model proposed by Ecoagriculture Partners. While this decision will involve the assessment of a number of ‘triggers’, such as the ones suggested above, the triggers would not be considered in isolation or in a mechanistic manner. Finally, in order to ensure rigor, the triggers would be proposed by the M&E Unit and approved by the Steering Committee before being proposed to the independent evaluator who
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will perform the mid-term evaluation. In view of its role, the independent contractor may still assess whether such triggers are adequate.
238. The proposed phasing reflects the BACP’s iterative approach to its four target commodities. As the palm oil market is are more advanced in terms of roundtable dialogue on environmental sustainability, larger sums of TA can leverage significant reductions in impacts on biodiversity. The markets for cocoa, sugarcane and soybean, on the other hand, are not as far advanced in their identification of BMPs, and therefore, are not yet poised for mainstreaming cost-effective opportunities for biodiversity preservation.
239. It is expected that by the time a decision would be made with respect to the second phase of funding, (a) the market transformation for palm oil and one other commodity will be significantly underway, and (b) the two remaining markets will be mature enough to be in a position to constructively absorb larger amounts of TA from the BACP. The IFC expects that in a second phase, if approved, the proportion of funds allocated to palm oil will be reduced, and the proportion of funds for cocoa, sugarcane and soybean will be increased.
240. The 4 to 6 year period between the Phase 1 and Phase 2 requests is consistent with the timing observed for the roundtables to create and implement principles, criteria, indicators and verifiers, as well as define targets for the chosen indicators. It generally takes the roundtables 1 to 1.5 years to define the TWGs, and for the TWGs to then meet and draft globally acceptable indicators and targets. In some instances there may be areas of disagreement or gaps in the data that require additional research and information about what is actually happening rather than what might be theoretically possible. This can take another year or more. As these indicators and targets are then vetted by an ever larger group of people and institutions, pilot projects are begun in different parts of the world—usually with progressive producer groups or in areas where a NGO or a private sector company have active involvement with producers on the ground—to see how universal they are or whether they will have to be adapted locally in each instance. (The goal is that the indicators and their targets should be universal so that the playing field is level. They should be based on what 10-30 percent of individuals/entities can already, and agree to, do rather than what research suggests might be theoretically possible).
241. Thus, within two years of starting the process, the principles, criteria, indicators and targets should be drafted and vetted globally. By the end of year two, producers will be attempting to meet the standards and some private sector players will be looking at chain of custody and traceability issues to see how they can be addressed on the ground. This will continue through year three. By year four a Program of certification or verification will be established that producers, buyers, and investors can use to improve commodity production. This could be delayed if there is disagreement over the standards. By year five, however, “better” products should be on the market. The speed at which the transition and overall market penetration occurs will depend first and foremost on demand, as well as the distance producers have to go to achieve performance levels.
C. Co-financing and Leverage
242. General. During appraisal, IFC committed to provide US$ 1 million in initial co-finance for BACP; this will come from IFC’s Technical Assistance Trust Funds, and from IFC’s Sustainability Business Innovator (see Letters of Commitment from IFC’s Trust Funds Division,
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and from the Sustainability Business Innovator Manager, in Attachment b to the CEO Endorsement Request; see also Annex 16, which presents the Sustainability Business Innovator). IFC’s Monitoring and Evaluation contractor will be providing US$ 200,000 in initial co-finance. The initial co-financing from IFC, US$ 1 million from the Innovator facility, will be front loaded in years 1 and 2 (if not entirely spent in year 1) of the program. The initial and subsequent co-finance from Ecoagricultural Partners is materialized as set forth in Table 3 of the Proposed M&E Plan (Annex 7).
243. In addition, all GEF TA funds will be matched by a minimum 1:2 subsequent co-financing by Program partners including industry and NGOs, or from other organizations including donors, and other complementary initiatives. However, the expectation is for a much larger co-finance of GEF funds. Annex 10 presents letters of intent from sixteen potential project partners, in which they state, inter alia, that they understand and expect to meet BACP’s co-finance requirements. Furthermore, it is reasonable to expect leverage of 1:3 for some field-based TA projects (as indicated in most of the Sample Projects in Annex 6).
244. More important than the amount of co-finance the project can raise is the amount of investment leveraged by BACP. Projects targeting FIs will provide TA that will aim to influence commodity investment flows. While the amounts of TA and associated co-finance are expected to be rather small (hundreds of thousands), the investment that can ultimately be affected would be in the hundreds of millions. Those investment flows will have a great impact on land use decisions that affect biodiversity.
245. Similarly, projects targeting private sector partners will all ultimately aim to influence land use planning and farming practices that form the basis for investments of hundreds of millions of dollars. This investment leveraged is far more significant, in dollar terms and in impact terms, than the co-finance for individual projects.
246. All projects funded will be small incremental steps in a process that will result in mainstreaming biodiversity-friendly processes into multi-million dollar the value chains with an ultimate impact over several tens of millions of hectares. The BACP’s most significant leverage will come through this mainstreaming process, where a small (hundreds of thousands) allocation of BACP funds applied to test, demonstrate, or promote a practice leads to investment flows of tens or hundreds of millions of dollars.
247. Leverage on TA related to an investment. When the TA is applied to improve the biodiversity performance of an investment (be it supported by IFC or by another FI), potential for leverage is quite high. It is reasonable to assume that the amount of a BACP grant based around an Agribusiness Department investment would be on the order of US$ 100,000. While IFC Agribusiness Department loans vary between US$ 15 – 100 million, most loans are within US$ 20-50 million. In addition, IFC is limited to providing a maximum of 25% of funds for an investment, so the total size of a typical investment BACP could influence would be US$ 80 – 200 million. Therefore, even a single BACP grant of US$ 100,000 to protect biodiversity, in a given investment project, could influence US$ 80 million worth of agribusiness investment, for a leverage ratio of 1:799. Though the portion of the investment that will actually address environmental practices will vary, it is clear that the opportunity for leverage is very extremely
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high In addition, the concerned company is acquiring a better practice that will be replicated and thus live far beyond the project.63
248. Leverage on TA for financial institutions. TA to help FIs integrate biodiversity concerns and cost-effective opportunities for biodiversity preservation into their screening practices also has a very high potential for leverage. While the TA may cost up to a few hundred thousand of dollars BACP funds (leveraged by the FIs own resources) the outcome could influence investment flows of hundreds of millions of dollars.
249. Direct co-financing from IFC. The IFC will directly leverage BACP funds. For instance, IFC’s membership in the Roundtables would be shared with other IFC departments. So far, the RSPO membership is covered 50% by the GEF and 50% by the IFC
250. Co-finance from other donors. The BACP is designed to be a flexible grant-making program with an adaptive management structure and non-fixed budget. Its absorptive capacity is therefore greatly higher than the US$ 8 million committed for core program financing. Active fundraising will continue during implementation. The IFC will seek additional concessional funds (grants) that would be applied to components of the BACP which, by their nature, make it more difficult to obtain private sector funds as they would relate to social goods. For example, the development of landscape management plans that encompass a broad region is less likely to obtain the same levels of private sector co-financing than the development of a practice that increases a plantation’s efficiency. Contacts with potential donors have been initiated.
251. While IFC has had initial discussions with potential partners about landscape management projects (see Annex 6, Portfolio of Sample Projects) specific landscape level projects can only be fully defined once the Market Transformation Strategy is finalized. Therefore, it is premature to approach donors about specific funding opportunities.
252. Complementary activities. IFC may also finance complementary activities that support the roundtables. For example, the IFC/WWF BMP Initiative described in Section I-F is one of these. IFC, through funds from the South African Technical Assistance Trust Fund, will implement a study on existing Better Management Practices in sugarcane rearing and milling, and in management of cane by-products (expected budget: US$ 250,000). Some of these complementary activities will address social issues in commodity supply chains.
63 Of course, a proposed project involving TA related to an IFC investment would need to undergo the same screening process as any other proposal to BACP, as described in Section K.
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V. INSTITUTIONAL CO-ORDINATION & SUPPORT
A. Core Commitments & Linkages
253. IFC mainstream investment operations. The BACP will take advantage of the IFC’s own networks and resources to maximize IFC co-financing and especially, to incorporate biodiversity preservation opportunities into mainstream IFC investments. The BACP team will coordinate with the IFC’s Agribusiness and other relevant departments to maximize the participation of their clients in the BACP and to help enhance the environmental performance of existing and future investments. See Section F (The IFC’s Role in Agricultural Commodity Markets) for more detail.
254. IFC/WWF BMP Initiative. As discussed in Section F (The IFC’s Role in AgriculturalCommodity Markets) the BMP initiative works through commodity roundtables to promote the use of commodity–specific BMP based screens that allow: (a) producers to enhance environmental sustainability, social equity and labor standards; (b) institutional purchasers to encourage and support sustainability through their supply chains (in the absence of formal certification); and, (c) investors to reduce risk/exposure. The BMP Initiative sees a clear complementarity with the BACP, whose TA facilities could help businesses implement biodiversity BMPs identified by the Initiative. Deliverables of the present second phase of the BMP Initiative include developing, testing and implementing BMPs for agribusiness commodities. WWF organized a technical workshop on responsible soy and two roundtables on BMPs in the sugar sector. They also produced an evaluation of certification schemes in four agricultural commodity sectors (banana, cocoa, soy and cotton), and a study on certification costs in the banana industry.
255. Other IFC donor-funded Programs. Collaboration with the other IFC programs, including the donor-funded Linkages Program (outreach to SMEs), and the GEF-funded, IFC-managed, Environmental Business Finance Program (EBFP) will be extremely valuable for replicating successful project-level initiatives to a wider SME audience. While the BACP will reach smaller producers only through the intermediation of larger value-chain participants, the EBFP and the Linkages program will be able to target SMEs directly. In the course of BACP appraisal, through IFC’s Technical Assistance Trust Funds, the South African government decided to support a study to define or develop Better Management Practices for sugarcane rearing, cane milling use, and management of by-products. Though this is not directly part of BACP activities, the TOR for the work was developed in cooperation with the BACP appraisal team.
Industry Initiatives
256. Several GEF and non-GEF funded sustainable agriculture initiatives are highly complementary with the BACP. Collaboration or consultation with them could greatly increase the potential impact and the quantity and quality of BACP projects. Examples of sustainable agriculture initiatives with which the BACP could collaborate or consult include:
257. Roundtable on Sustainable Palm Oil (RSPO). The RSPO is a multi-stakeholder organization created in 2001 to promote the growth and use of sustainable palm oil through co-operation within the supply chain and open dialogue with its stakeholders. The IFC is a full
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member of the RSPO. The RSPO board has reviewed BACP’s Strategy for palm oil. Preliminary discussions and negotiations with the RSPO executive board have identified priority areas for cooperation:
a. Facilitation of a workgroup on biodiversity involving palm oil growers and industry federations64 to clearly define biodiversity aspects of RSPO guidelines and coordinate training on biodiversity. This working group, called the Technical Committee on Biodiversity was proposed by the BACP appraisal team during the RSPO’s third General Assembly (November 2006) and has been endorsed by roundtable members; and
b. Technical Assistance related to High Conservation Value Forest and biodiversity in palm oil production landscapes including identification of suitability of areas for agricultural or conservation purposes through landscape management and mapping and zoning techniques.
258. Furthermore, in the medium term, cooperation in the areas of verification of certification systems and processes and engagement with governments are also envisaged. As the RSPO and the BACP objectives are fully aligned (see Annex 4, Roundtable on Sustainable Palm Oil, Principles and Criteria) further areas of cooperation are likely to emerge during the implementation of the BACP.
259. Better Sugarcane Initiative. As this Roundtable has only recently selected its steering committee, and the BSI’s work is still in the process of being defined, cooperation is not developed in as much detail as for the RSPO. IFC attended most BSI meetings to date, in which members welcomed support from BACP on themes related to biodiversity conservation, reflected in the sample project with the BSI presented in Annex 6. IFC, through funds from the South African Technical Assistance Trust Fund, will implement a study on existing Better Management Practices in sugarcane rearing and milling, and in management of cane by-products (expected budget: US$ 250,000).
260. World Cocoa Foundation (WCF). The WCF is an industry organization that promotes a sustainable cocoa economy through economic and social development and environmental conservation in cocoa growing communities. Through its members, the WCF supports the Sustainable Tree Crops Program, which is doing important research and training in sustainable cocoa growing practices.
64 Indonesian Palm Oil Commission (IPOC), Indonesian Palm Oil Producers Association (GAPKI), Malaysian Palm Oil Association (MPOA).
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NGOs
261. BACP will also rely on the knowledge and contacts of certain NGOs who are well placed to help implement certain parts of the program. These NGOs include Ecoagriculture Partners whose very numerous partners include IUCN and a number of other NGOs and Universities, the Rainforest Alliance (RA), the WWF (several country chapters), Conservation International, and The Nature Conservancy. Other international and local NGOs will be involved in the implementation of specific field or other projects, as this is part of the selection criteria.
Local Institutions and Initiatives
262. Finally, the BACP will seek to create partnerships and leverage at a local level with national market actors such as local TA providers, agricultural research centers, local environment funds and initiatives and local producers, financial institutions and civil society groups working towards the BACP’s overall goal.
263. Based on preliminary discussions with RSPO, the BACP would be in a position to work with the Indonesian Palm Oil Producers Association (GAPKI) to assist in the coordination of training on biodiversity as a key component targeted at their respective member companies and to source projects for the BACP. The Malaysian Palm Oil Association (MPOA) has also expressed its intent to work with BACP (see list of Letters of Intent, Annex 10).
264. In Brazil, BACP will coordinate with the Brazilian Agricultural Research Corporation (EMBRAPA). EMBRAPA’s mission is to provide feasible solutions for the sustainable development of Brazilian agribusiness through knowledge and technology generation and transfer. Embrapa’s research in agro-energy, soybean, cocoa and sugarcane crop systems is amongst the best in the world and is relevant to BACP. BACP will also seek additional partners in Brazil, as implementation evolves.
265. The BACP will also make sure that the relevant local, state, or national-level policy making entities are engaged when needed to help remove certain barriers to BMP adoption that the private sector alone may not be able to effectively address.
B. Consultation, Coordination and Collaboration between IAs
266. The Program’s collaboration with the wider World Bank Group and the other GEF implementing agencies will take advantage of complementary activities such as policy or regulatory reform, government capacity building, and smallholder rural initiatives. For example, the BACP appraisal team has been in touch with World Bank staff dealing with forestry in Indonesia; has met with staff preparing an Indonesian agricultural sector loan, on possible collaboration on the cocoa component of the loan; has initiated policy dialogue on cocoa in West Africa, and is coordinating its Brazil activities with the World Bank country office on several fronts. For example WB and IFC collaborate on an Amazon strategy in support of the federal and state Governments efforts, for which consultations with the private sector should begin in the next following months, including with the RTRS. The BACP will coordinate in all concerned countries, as relevant, with the World Bank’s related agriculture operations and policy-dialogue
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staff. Where relevant, that would be to address policy-related barriers that need to be removed to allow the use of chosen BMPs in target countries.
267. BACP may use some of the industrial fora set up by UNEP’s Department of Technology, Industry, and Economics (DTIE), such as the Sustainable Production & Consumption activities on Sustainable Agrifood, as vehicles to disseminate information on Better Management Practices (BMPs), to discuss strategies for commodity market transformation or to share lessons learned. The BACP will coordinate with the efforts of the UNEP DTIE Initiative on Integrated Assessment of Trade-Related Policies and Biological Diversity in the Agriculture Sector to address trade policy-related issues as appropriate. For M&E purposes, BACP might also be able to consider selected biodiversity indicators from UNEP’s forthcoming Biodiversity Assessment Reference Manual. Further opportunities for coordination might arise if the target countries/commodities to be selected for UNEP case studies match the target commodities/regions of the BACP.65 The GEF secretariat has rejected the PIF of the UNEP/ Rainforest Alliance “Greening the Cocoa Industry” Project. IFC is nevertheless also in touch with UNEP and with RA, who had sent a letter of intent to IFC regarding cooperation on BACP, and plans to coordinate with RA and interested cocoa buyers to also find suitable activities for BACP funding.
268. IFC had been prepared to collaborate with the proposed Conservation International/UNDP project on Conserving Globally Significant Biodiversity in Cocoa Production Landscapes in West Africa. UNDP did not yet submit the project to the GEF Council. IFC has been and will continue being in touch with UNDP and Conservation International to define a desirable course of action for possible further collaboration.
269. In general, coordination with IAs and EAs will be ensured through regular, scheduled communications with relevant staff. In addition, an electronically-distributed BACP newsletter also available on BACP’s web site, will keep all potential partners, including IAs and EAs, updated on the Program’s activities.
65 For this EU funded initiative, six country case studies from the Africa Caribbean Pacific (ACP) region will be selected by the project steering committee in 2006. Case studies will be conducted in 2007-2008, leading to implementation of recommendations in 2009.
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Annex 1
Biodiversity and Agricultural Commodities Program (BACP)
Annex 1 Overview of Agricultural Commodity Markets for Palm Oil, Cocoa, Sugarcane and Soybean
Annex 2 Maps and Tables Related to Production and Export of BACP’s Target Commodities
Annex 3 Summary of Findings and Corresponding Adjustments to Program Design During Program Development, Including Initial Selection Process for Target Commodities
Annex 4 Key Documents from Palm Oil, Soy, and Sugarcane Roundtables
Annex 5 Definition of High Conservation Values
Annex 6 Portfolio of Sample BACP Projects
Annex 7 Monitoring and Evaluation (M&E) Plan
Annex 8 Logical Framework
Annex 9 Incremental Cost Analysis
Annex 10 List of Letters on Intent of File with IFC
Annex 11 Environmental and Social Clearance Memorandum
Annex 12 STAP Review
Annex 13 Tracking Tool for GEF Biodiversity Focal Area Strategic Priority Two
Annex 14 Preliminary Market Transformation Strategy for Palm Oil
Annex 15 Preliminary Market Transformation Strategy for Cocoa
Annex 16 The IFC’s Innovator Facility
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ANNEX 1: OVERVIEW OF AGRICULTURAL COMMODITY MARKETS FOR PALM OIL, COCOA, SUGARCANE, AND SOYBEAN
Palm oil
Uses. Palm oil can be separated into a range of distinct oils with different properties that can be used in a large variety of products which, in the past, contained animal or other vegetable oils. Palm oil is used as a cooking oil; it is the main ingredient for most margarine; it is the base for most liquid detergents, soaps, and shampoos and, in its most dense form, serves as the base for lipstick, waxes, and polishes. It is estimated that palm oil is found as an ingredient in more than 10 per cent of all consumer goods products in a supermarket including, chocolate, snack foods, detergents, toothpastes and shampoo.
Production location. The oil palm (Elaeis guineensis and E. oleifera) cultivated in Africa, Latin America and Southeast Asia. More than 80% of the exported palm oil production comes from Malaysia and Indonesia; other significant palm oil producers are Nigeria, Thailand, Colombia, and Papua New Guinea.
Production type. Outside of its native West Africa, the oil palm is mostly grown on plantations in Asia and Latin America. In Southeast Asia, these plantations are usually established as monocultures in concessions ranging in size from 4 square km (400 hectares) to 729 square kilometer (72,900 hectares). In Malaysia and Indonesia, most production comes from large plantations, which typically own the mill that crushes their Fresh Fruit Bunches (FFB).
Small producers, who do not need machinery and who rely primarily of family labor, can generate profits selling their FFB to processors. Consequently, a system has evolved in Asia in which larger companies encourage small producers to plant oil palm, because the companies can then rely on them for part of the volume they need to make their mills viable. As FFBs need to reach a mill within 24 hours of harvest, the mills generally have a regional monopoly. About one-third of palm oil production in Indonesia and Malaysia comes from FFBs grown by smallholders.
Market structure. About 80 per cent of global palm oil production is exported and is traded on global markets. More than 150 countries import significant amounts of palm oil, but Europe (17%), China (16%) and India (14%) are the leading importers. As the end uses of palm oil are very diverse and there are low concentration rates of end markets, even the largest corporate buyers have only a limited ability to control and transform demand. The main industry concentration occurs at the producer level, where the members of RSPO account for 30-50% of the world’s palm oil exports.
Outlook. Palm oil is the fastest growing segment of the global vegetable oil market. It has been increasing its market share to the point where it now accounts for 28.3% of the world’s total
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vegetable oil consumption, compared with just 19.8% in 1990 and 14.5% in 1980.66 The expected additional demand for the biofuels market is likely to accelerate this general trend.
Status of industry discussions on biodiversity. Due to strong pressure from NGOs, the palm oil industry is well aware of it impacts on biodiversity, in particular from forest conversion and insufficient corridors for megafauna in the production landscape. The Roundtable for Sustainable Palm Oil brings together industry leaders to create a platform to discuss and address biodiversity (and social) impacts.
Cocoa
Uses. The production of chocolate and chocolate products consumes about 90% of the cocoa produced worldwide. The other 10% of cocoa is used in the production of flavorings, beverages, and cosmetics. These products include baking cocoa, hot cocoa mix, baking mixes, packaged foods, and cocoa-butter based body care products.
Production location. Cocoa (Theobroma cacao) is a cash crop grown throughout the humid tropics. Over 7 million hectares of cocoa are planted in 62 countries, but cocoa production is highly concentrated in West Africa. Côte d’Ivoire and Ghana clearly hold dominant positions and supply about 60% of global production (40% and 21% respectively), followed by Indonesia (13%), Nigeria (6%) and Cameroon.
Production type. Almost 90% of cocoa production comes from smallholder farms of under 5 hectares and about 20 million people depend on cocoa for their livelihood. However, farm sizes vary by region: in Africa almost all production comes from smallholdings (and cooperatives), while in Indonesia and Brazil large estates and smallholders coexist.
Market structure. About 56% of world production is exported. In Western Africa, the major production region, cocoa exports used to be controlled by state monopolies, but after the structural adjustment policies of the 1990s, global cocoa supply chains are now dominated by a limited number of multinational corporations. Ghana is a notable exception; the Ghana Cocoa Board (Cocobod) sets prices and regulates the market. Further downstream in the supply-chain, trading and processing (i.e., grinding & roasting) is dominated by four multinational firms who are estimated to control over 40% of the market.67 Just like the cocoa processing industry, the conventional chocolate manufacturing industry is controlled by a small number of multinational firms.68 All of these companies manufacture products for the retail market and are vertically integrated from trading and processing through manufacturing and marketing. Combined with the four major processors listed above, these ten companies control over 70% of the world’s processing capabilities.
Outlook. Consumption of chocolate products in traditional markets of Europe and North America and the emergence of new markets in Eastern Europe and Asia are expected to rise. If the political crisis in Côte d’Ivoire results in shortage of supply, prices will increase. Continued supply of cocoa in the medium and long-terms is a major issue facing the cocoa industry. 66 Rabobank (2005) The Oilseed Industry – surviving in a Changing Competitive Environment http://www.rabobank.com/Images/Rabobank_The_Oliseed_Industry_2005_Shwedel_January2005_tcm25-12245.pdf 67 Archer Daniels Midland (ADM), Cargill Inc, Barry Callebaut (grinders) and Nestle (chocolate manufacturing).68 Six manufacturers account for 50% of world chocolate sales: Nestlé, Mars, Philip Morris/Kraft, Cadbury, Ferrero, and Hershey.
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Status of industry discussions on biodiversity. Currently social issues (e.g., child labor) are highest on the industry’s sustainability agenda and biodiversity aspects are not fully addressed by major industry players. However, a number of industry sustainability initiatives are currently underway and the continuing concern about sustainability of cocoa supply provides ample opportunity for initiatives related to biodiversity conservation.
Soybean
Uses. Soybean is grown primarily to provide cheap edible oil and high-protein animal feed. Soybean oil is now the most consumed oil in the world, primarily used for human consumption in cooking oils, margarines or shortening in the baking industry. Soybean meal was first simply a by-product from the crushing of soybeans for oil but now represents about 70% of total animal meal production.
Production location. About 90 million hectares are planted with soybean (Glycine max) mainly in countries with large scale cattle and feedstock production: USA (29.3 million hectares), Brazil (21.5 million hectares) and Argentina (14.3 million hectares).
Production type. Soybean is not a subsistence crop (no smallholdings with the exception of in China and India), but is usually grown over large areas up to several thousand hectares with extensive mechanization and low labor inputs.
Market structure. About 2/3 of the production is consumed directly in the production country. Europe is the main importer of soy meal (51% of total exports), while China is the largest importer of soy oil. Argentina and Brazil are the dominating export nations for both oil and meal from soy, and account together for more than 75% of total exports. Soy oil prices are interrelated with soy meal prices and other major oil prices (palm oil, rapeseed/canola, sunflower).
Outlook. While soybean faces intensive competition from palm oil producers in Malaysia and Indonesia - who can produce oil at about half the cost of soybean and other seed oil producers - soybean production is expected to continue to grow.
Status of industry discussions on biodiversity. Soybean plantations have developed rapidly, in particular in Brazil, where the dry savannah ecosystems of western central Brazil in the states of Piaui and Mato Grosso, home to about ten thousand plant species and animals in danger of extinction, are threatened by further developments. Within the Roundtable on Sustainable Soy, the industry has acknowledged the broader environmental issues and committed to continue with the process for addressing problems and develop and reinforce the chain for responsible soy production. However, further work is needed to specifically address biodiversity.
Sugarcane
Uses. Sugarcane (and sugar in general) is used in many food products. Sugar is considered a staple food by many consumers and some multinational food and soft drink producers strongly depend on sugar as a core ingredient of their products. Mars Inc., for example, purchases about 10% of the world sugar production every year. In Brazil, the world’s largest producer of sugarcane, a large share of the production is transformed into ethanol. If fuel prices remain high,
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this type of usage as biofuel is expected to grow significantly at the international level. Sugar processing wastes (bagasse) can be used as a biomass fuel; sugar waste can also be turned into paper, fertilizer, and other valuable products.
Production location. Brazil and India have by far the most land devoted to sugarcane (Saccharum officinarum) with 5.6 million (21.1% of world production) and 4.1 million hectares (19.5% of world production) respectively69(see Annex 2 below for production areas).
Production type. Sugarcane, a member of the grass family, is used for sugar production in the tropics and sub-tropics and accounts for 76% of total global sugar production. In Brazil most sugarcane is grown in medium to large-sized farms, but in most other developing countries, a large part of sugarcane production comes from small farms (2-3 hectares on average).
Market structure. The proportion of total global sugar production that enters international trade is relatively small – around 70% of total sugar output is consumed in the country where it is produced. Brazil plays a dominant role and is by far the most important exporter, accounting for more than 45% of exports (15 million metric tons).
Outlook. Driven by consumer demand that has increased by more than 50% over the last twenty years, world sugar production has seen a dramatic increase since the middle of the century, growing from a 55.4 million tons in 1960 to more than 145 million tons in 2003/04. Sugar prices are expected to be high and a sustained increase of demand is likely to further increase production. An expected increase in demand for biofuel from ethanol will accelerate this trend. The prospect of a contraction of sugar beet production due to changes in the EU sugar regime are likely to further strengthen the importance of sugarcane production, in particular from Brazil.
Status of industry discussions on biodiversity. The recently launched multi-stakeholder “Better Sugarcane Initiative (BSI)” has the goal to ensure that sugar cane production and primary processing are undertaken in a socially and economically sustainable manner. Biodiversity concerns are raised particularly over the clearance of natural habitat for expansion of croplands. The BSI, which is in its early stages, has identified this and other environmental issues related to sugarcane production, and will next define target performance levels.
ANNEX 2: MAPS AND TABLES RELATED TO PRODUCTION AND EXPORT OF BACP’S TARGET COMMODITIES
Palm Oil Production and Exports
Palm Oil Production Palm Kernel Oil Production
CountryQuantity
000 t% Country
Quantity000 t
%
69 World Sugar Yearbook 200575
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Malaysia 13 974 45.6 Malaysia 1 594 46.1
Indonesia 12 080 39.4 Indonesia 1 219 35.3
Nigeria 790 2.6 Nigeria 204 5.9
Thailand 668 2.2 Thailand 61 1.8
Colombia 632 2.1 Colombia 55 1.6
PNG 345 1.1 PNG 33 1.0
Cote d'Ivoire 270 0.9 Cote d'Ivoire 28 0.8
Ecuador 260 0.8 Ecuador 20 0.6
Rest of the world 1 610 5.3 Rest of the world 242 7.0
Total 30 629 Total 3 456
Palm Oil Exports Palm Kernel Oil Exports
Country Quantity000 t % Country Quantity
000 t %
Malaysia 12 186 52.2 Indonesia 840 46.0
Indonesia 8 580 36.7 Malaysia 793 43.4
PNG 336 1.4 Thailand 73 4.0
Colombia 186 0.8 PNG 32 1.8
Thailand 166 0.7 Colombia 24 1.3
Costa Rica 136 0.6 Other countries 66 3.6
Honduras 106 0.5 Total 1 828
Cote d'Ivoire 103 0.4
Rest of the world 1 557 6.7
Total 23 356
Source: Oil World 2005
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Cocoa Production and Grindings
Production Grindings
Country Quantity000 t % Country Quantity
000 t %
Côte d'Ivoire 1 386 39.5 EU 1 241 38.4
Ghana 735 21.0 USA 401 12.4
Indonesia 450 12.8 Côte d'Ivoire 321 9.9
Nigeria 185 5.6 Brazil 207 6.4
Cameroon 167 4.8 Malaysia 200 6.2
Brazil 163 4.7 Indonesia 122 3.8
Ecuador 105 3.0 Rest of the world 736 22.8
Rest of the world 314 8.7 Total 3 228
Total 3 505
Source: ED&F Man Cocoa Ltd
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Soybean Production and Export
Oil Production Oil Exports
Country Quantity000 t % Country Quantity
000 t %
USA 7 747 25.1 Argentina 4 367 48.4Brazil 5 629 18.2 Brazil 2 718 30.1Argentina 4 729 15.3 EU (25) 538 6.0China 4 690 15.2 USA 434 4.8
EU (25) 2 551 8.3 Other countries 958 10.6
India 1 086 3.5 Total 9 015Other countries 4 426 14.3
Total 30 858
Meal Production Meal Exports
Country Quantity000 t % Country Quantity
000 t %
USA 32 953 24.9 Argentina 19 156 42.7Brazil 22 520 17.0 Brazil 14 761 32.9China 21 933 16.6 USA 3 957 8.8Argentina 19 758 14.9 India 3 406 7.6EU (25) 10 933 8.3 Paraguay 892 2.0Other countries 24 364 18.4 China 632 1.4
Total 132 461 Other countries 2 088 4.7
Total 44 892
Source Oil World 2005
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Sugar Production and Exports
Production Exports
Country Quantity000 t % Country Quantity
000 t %
Brazil 23 652 21.1 Brazil 15 780 45.2
India 21 897 19.5 Thailand 5 171 14.8
China 10 217 9.1 Australia 3 639 10.4
Thailand 7 670 5.8 Cuba 1 910 4.8
Australia 5 609 5.0 Guatemala 1 255 3.6
Mexico 5 345 4.8 Colombia 1 171 3.4
Pakistan 3 980 3.6 South Africa 1 020 2.4
USA 3 595 3.2 Rest of the world 4 966 14.2
Colombia 2 646 2.4 Total 34 912
South Africa 2 412 2.2
Cuba 2 251 2.0
Philippines 2 237 2.0Rest of the world 20 606 18.4
Total 112 117
Source: World Sugar Yearbook 2005.
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Palm Oil: Harvested Area and Production
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Cocoa: Harvested Area and Production
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Soybean: Harvested Area and Production
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Sugarcane: Harvested Area and Production
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ANNEX 3: SUMMARY OF FINDINGS AND CORRESPONDING ADJUSTMENTS TO PROGRAM DESIGN DURING PROGRAM
DEVELOPMENT, INCLUDING INITIAL SELECTION PROCESS FOR TARGET COMMODITIES
Developing BACP has been a process rich in lessons learned and applied thereafter where relevant to adjust the program design. No factor however brought any major change to the design or to the founding principles of BACP, as these had been originally laid out in the concept note, early 2005.
BACP remains a ten year market transformation program which aims at mainstreaming, measurably, biodiversity-enhancing practices in the production landscape by using market forces expressed in existing, private-sector led, international, multi-stakeholder initiatives, in four target commodities: palm oil, cocoa, soy and sugarcane. Whilst following sustainability goals originated in these initiatives and set forth in BACP commodity-specific strategies, it uses a grant-making facility model, with clear selection criteria and rules of the game. The program budget is not finite but a minimum is needed in the initial core budget for the model to work and attract partners and co-finance: this is also the reason for a phased approach 70. The BACP Phase 1 can take 3 to 6 years but has been set to 5 years for ease of appraisal. Another key feature of BACP is that it needs the flexibility to shift the focus from one commodity to another of the chosen four and still be able to efficiently use its fixed resources, depending on market variations and on the pace of the corresponding multi-stakeholder initiatives that define the transformation goals.
Below are highlights of the main findings and measures taken in the two-year process since identification, starting with the most recent.
1. Summary of Findings at Appraisal
During appraisal, IFC commissioned an M&E plan, revised the log frame, revised the proposed management structure to make it more efficient, and conducted research on policy barriers to the implementation of BMPs. IFC also received endorsement from the GEF Focal Point from Brazil. Finally, IFC participated in meetings of the soy, sugarcane, and palm oil roundtables, and in several meetings with representatives of the cocoa industry. This allowed IFC to define in greater detail preliminary Market Transformation Strategies for Palm Oil and Cocoa. The Program Appraisal Document reflects the information gained through each of these activities, as presented below.
IFC was aware of the need to be able to measure, and claim, impact in a reliable way and, therefore to link the proxy indicators associated with verification systems to biodiversity change (while mastering causality issues). IFC approached Ecoagriculture Partners (EP, see Annex 7 for a description) because they had developed a promising model that might help just do that. EP indeed accepted to partner with IFC, prepare the M&E Plan for BACP, and later implement it after program approval. EP is interested in the partnership with BACP as it will allow them to
70 IFC had wanted a tranched approach, rather than a phased approach but the GEF preferred the phased approach (i.e.: having to go back to Council for a possible Phase 2).
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test and adjust their model. EP has co-financed some portions of the preparation and appraisal of the M&E Plan and has committed to provide US$200,000 in initial co-finance for the M&E component of BACP.
The M&E of the BACP is innovative as the actual field impact of verification or certification on biodiversity has not previously been systematically and scientifically linked. The M&E plan will do so by testing and refining a special model which can later be replicated for similar projects or activities. For this reason, it will contribute, in itself, to increased knowledge in the fields of biodiversity and agriculture. The importance IFC attributes to the innovativeness of the M&E plan, is reflected in a specific output related to M&E itself in the BACP logframe (Annex 8).
The BACP logical framework was revised as a result of the improved M&E Plan. IFC also improved its presentation and formulation so as to state only what is necessary and sufficient.
During appraisal, IFC also streamlined the Program management structure. At the moment of submission to Council, IFC had envisaged that the Steering Committee would be responsible for approving project proposals. During appraisal, it became clear that it was better, for the sort of innovative programs like BACP to have a committee that would be stronger in a more upstream, international, guidance and advisory kind of role. The Steering Committee will be an international body consisting members from several different organizations which would guarantee, by approving the selection criteria and the Market Transformation Strategies, that BACP goes in the right direction. Such a Steering Committee is therefore no longer an optimal body for assessing and selecting individual projects. Typically, it would not have a quick turnaround time for making decisions and BACP would lose efficiency and credibility. The actual decision on project selection will rest with IFC, using its own procedures, upon recommendation of the BACP Program Management Unit. The Steering Committee will also approve the triggers which will be proposed to the independent evaluator who will conduct the mid-term evaluation.
IFC sought to obtain further information on policy barriers to the adoption of biodiversity-friendly practices in the production of palm oil (Malaysia and Indonesia) and cocoa (Ghana and Côte d'Ivoire). IFC drafted detailed terms of reference for specialized consultants in this domain and advertised broadly. It proved however difficult to identify consultants able to help with this task. We found that crossed knowledge on all three of policy, commodity production and value chains, and biodiversity, is rare. This reinforces the need for BACP’s Component 1 (Enabling environment). Even the Roundtable for Sustainable Palm Oil itself does not have such information, and agreed with IFC that it would be very important to map it out clearly. IFC was able to obtain initial indications of policy priorities, via a literature review and interviews, but a more thorough analysis and corresponding recommendations will need to be done during implementation with relevant partners.
During the appraisal period, IFC obtained BACP endorsement from the GEF Focal Point from Brazil. In his letter (dated October 18, 2006), the Focal Point stated that approval is conditional on “a) the projects to be implemented in Brazil will need to be individually endorsed by us, GEF focal point, before they can be approved by the Program Manager; b) we will want to be updated on any change to the same projects so endorsed and to receive regular information on
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their progress.” IFC will engage in dialogue with the Brazilian GEF Focal Point and other public authorities that would be involved in BACP (EMBRAPA, other) in order to optimally take into account the request of the Brazilian government in a way that is consistent with the BACP objectives and commitments. IFC notes that the Brazilian government has a strong presence in the soy roundtable meetings.
Market developments have mainly concerned the boom of the biofuels and the roundtables themselves. During BACP appraisal, the world became, suddenly, a lot more convinced of climate change issues, and the private sector started to massively look into biofuels as a business opportunity. For BACP this concerns essentially ethanol (based on sugarcane) and palm oil. There is a discussion of these factors in the preliminary palm oil strategy (Annex 16). It is premature to decide on a specific direction to take, as the market perspectives look too blurred for the moment. This prudent position is also the one of the RSPO and BSI at the moment. But there is no doubt that the potential increase in biofuels demand confirm the need for the work of the roundtable initiatives, especially as relates to clear biodiversity safeguards to any biofuels activity.
The Roundtable for Sustainable Palm Oil and the Round Table for Responsible Soy made good progress towards their goals. The Better Sugarcane Initiative was slower in its progress, but continues nevertheless to move towards its goals. In cocoa, IFC had believed that in the time period coinciding with appraisal, talks within industry on the formation of a multi-stakeholder initiative would have begun, but this has not been the case. IFC nevertheless continued extensive consultation of several stake-holders during appraisal, in all categories, and attended several meetings (e.g. of World Cocoa Foundation). As a result of these evolutions in its target markets, IFC has opted not to make cocoa a “fast track” commodity for BACP (as stated in the submission to Council), but select a number of activities and projects that can be implemented at this early stage, as spelled out in the preliminary Market Transformation Strategy Cocoa (Annex 17). IFC remains confident about BACP’s activities in the palm oil sector, and has raised its expectations for BACP activities in soy. Details on the progress of each the roundtables can be found in Section I C and Annexes 4, 14 and 15.
2. Summary Findings from Preparation71
Through a review and screening process of a long-list of 15 commodities, the commodity focus for the BACP has been defined and four commodities have been selected as target commodities (see below for more detail).
Furthermore, extensive consultation with stakeholders was conducted, which confirmed the relevance of the BACP approach for the selected commodities and resulted in the following adjustments to the initial BACP concept:
a. The importance of international, multi-stakeholder roundtables as alliance partners for the BACP was further strengthened. It became clear that roundtables that represent different
71 Preparation was supported by a consultant consortium led by Pricewaterhouse Coopers and including CIRAD, Alterra and PRI
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constituencies of stakeholders in a balanced way can play a crucial role in improving environmental performance. They are uniquely poised to build consensus on environmental principles & criteria among a broad range stakeholders in the commodity chains, and to facilitate pilot testing by industry leaders.
b. Among the selected target commodities, palm oil had already clearly emerged as the most mature commodity for BMPs implementation and therefore closer to market transformation objectives. A large number of relevant eligible projects have been identified for this commodity during preparation.
c. Moreover, it appeared during preparation that the selected commodity chains would benefit more from Technical Assistance (TA) rather than from financial instruments. It was therefore decided to allocate the Program funds to TA, and to address any financial constraints and barriers through technical assistance directed to financial services providers.
d. Finally, the BACP concept note was based on the assumption that "off-the-shelf” BMPs would be available and that a targeted removal of barriers would allow their broad adoption by industry. This assumption proved only partially true in the selected commodities as the link between BMPs and barriers for adoption is not always fully understood. While “win-win” BMPs exist and could be used, some of the targeted BMPs require further field-testing to document their economic and biodiversity benefits. The commodity roundtables are ideal partners to help bridge this gap, demonstrate biodiversity benefits, and build and disseminate the business case for BMPs. More importantly, there is a more upstream need to reach consensus, in multi-stakeholder initiatives, on the most important biodiversity (and other) issues that need to be addressed by the sector in an organized way, and to establish performance indicators and targets of transformation that anyone can live with, whatever the context. BMPs can vary a lot.
3. Commodity Selection Process
The BACP preparation team conducted market research to provide supporting data for the selection of the BACP priority commodities among a shortlist of 15 commodities. A simple high-medium-low rating system was designed to facilitate the selection process. In this rating system, market data were clustered around the following five categories:
a. Impact of prevalent production systems and practices on biodiversity, including the following subcriteria: habitat conversion, soil degradation, chemical usage, waste, water and other genetic species (e.g., GMOs).
b. Feasibility of alternative methods to these practices, including the existence of alternative methods; their feasibility and usage in industry; as well as their (positive) impacts on biodiversity.
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c. Existence of GEF and non GEF projects and initiatives that are aligned with the BACP objectives and could support the BACP.
d. Stakeholder traction. The potential of the commodity chain stakeholders, particularly the private sector, to engage in collaborative actions for the success of the BACP; and
e. Regional concentration, which might have an influence on the ability of the BACP program to be implemented cost-effectively.
A rating of the respective merits of each of the commodities according to these five criteria and a set of related sub-criteria was conducted during a telephone meeting involving experts from the BACP preparation team. Following a discussion with IFC of the rating system and supporting data, two additional criteria were considered:
a. Leverage of IFC mainstream resources, IFC interest and core-business activity, in particular of the IFC Agribusiness & Forestry departments. This criteria assesses to what extent the BACP could leverage and build upon IFC’s mainstream departments’ core business activities in the selected commodities and was rated in a three-tier rating (good/medium/low).
b. Expert opinion through limited consultation with selected experts and stakeholders. Additional input from a small number of selected experts and (Washington DC-based) stakeholders on the rating and commodity selection was sought at the request of the IFC. The purpose of the consultation was to seek further input and feedback in order to evaluate whether experts would confirm or challenge the initial rating proposed by the consultants.
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An overview of the results of the final rating proposed by the BACP team and the additional criteria developed in cooperation with the IFC are shown in the table below.
Final rating (selected commodities in bold/black)
Biodiversity impacts of current methods
Potential of alternative methods
Other initiatives coherent with the BACP
Stakeholder traction
Regional concentration
IFC leverage
Banana High High Several Fair Yes LAC Low
Beef High Medium Few Fair Yes LAC Good
Cocoa High Medium Several Good Yes W. Africa Medium
Coffee Medium Medium Many Good No Medium
Cotton Medium Medium Many Fair No Medium
Dairy Low Low Few Poor No Low
Palm oil High High Several Good Yes Asia Good
Rice Low Medium Few Poor No Low
Rubber Low High Few Fair Yes Asia Low
Salmon High High Few Fair Yes No Interest
Shrimp High High Few Fair No No Interest
Soybean High High Few Fair Yes LAC Good
Sugarcane Medium High Few Fair No Good
Tea Medium Medium Few Fair Yes Asia Low
Timber High High Many Fair No Medium
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Discussion and rationale for selection of BACP commodities
The selection process resulted in the following commodity focus for the BACP:
Palm oil (fast track): identified by environmental NGOs (e.g., WWF) as one of the major threats to forests, the oil palm sector has identified alternative methods and has already started implementing them through several projects and initiatives. The private sector already initiated a multi-stakeholder initiative, the Roundtable on Sustainable Palm Oil (RSPO) that represents a strong partner for the BACP. Regional concentration is high, as 80% of the production comes from Malaysia and Indonesia. IFC Agribusiness already has a strong involvement in the industry (producers, traders, refiners) and has access to the industry at all levels of the value-chain, including through the IFC/WWF Better Management Practices (BMP) initiative. External experts confirmed that good stakeholder traction and high potential for partnerships exist within this commodity.
Cocoa: actual production methods have a strong impact on habitat conversion. Alternative methods exist which could significantly reduce theses impacts, and several initiatives have been launched in recent years, mostly with the active participation of the private sector. Côte d’Ivoire and Ghana concentrate more than 60% of the production. While IFC Agribusiness’ contacts within this commodity are less developed, some access to the industry exists through intermediaries (i.e., trading companies). External experts also see a good potential, and a focus on West-Africa might also provide a geographical match (the current GEF portfolio is weaker in this region).
Soybean: The expansion of soybean production has a very strong impact, in particular through habitat conversion of Brazilian Cerrado and Amazonian forest. Production is concentrated in Brazil and Argentina and powerful industry stakeholders in that region are aware of the environmental and biodiversity problems. IFC is already involved at all levels of the supply chain, and existing relationships within the IFC/WWF BMP initiative could be leveraged. Experts consulted confirmed that soybean is a good candidate for the BACP.
Sugarcane: Habitat conversion, water use, soil degradation and pollution by chemicals and waste are the major threats to global biodiversity. Alternative methods exist and some are already in use. The private sector has a strong influence and has begun to engage in sustainability initiatives (e.g., Better Sugarcane Initiative). The likely development of bio-fuel will have an important impact on prices and demand for ethanol from sugarcane. The price of oil makes it possible to cultivate sugarcane profitably in areas that even a few years ago would have been too marginal for production. These are precisely the areas where there is a lot of biodiversity. BACP is in a position to anticipate the problem. This trend provides a strong rationale for the selection of sugarcane, despite the complexity of the supply chain (trade policy issues and government intervention). In addition, The IFC has a strong interest and large existing client portfolio in the industry and potential synergies exist with the IFC/WWF BMP initiative.
For the selected commodities, the table thereafter provides an overview of the key issues for each selection criterion.
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Com-modity / Criteria
1 Global Biodiversity
2 Business Case 3 Social Impacts 4 Implementation Barriers
5 Complementary GEF and non-GEF initiatives and organisations
6. Private sector traction & degree of industry organisation
7.Regional concentration
Cocoa Habitat conversion is the major threat; cocoa is often the first step in a forest conversion process.
There is a trend to vertical integration. A few large companies dominate the chain. Niche markets remain small. Fair trade cocoa is produced in many countries.
Changes will affect many farmers who do not have the financial resources and education level to make the transition to more sustainable systems.
Lack of information and capacity are the main bottlenecks. Existing organisation and extension structures were dismantled following liberalisation.
GEF activities in cocoa growing areas, in Brazil, Côte d’Ivoire or Ghana. Many initiatives are related to fair trade and organic cocoa production and many of these initiatives could have links with a BACP project.
Most production by smallholders. Major private players are concerned about supply problems in the future and conscious of a need for more sustainable production. Stakeholders are organised in several platforms.
West Africa
Palm Oil
The major impact is through habitat conversion, especially in Indonesia with strong effects on biodiversity. Other impacts are related to waste of oil mills and to crop and land management.
Demand for palm oil is increasing. There is a need to increase production. Rehabilitation of degraded land and regeneration of old plantations is feasible. Stakeholders are organised in various platforms.
In South East Asia, oil palm plantations are organised in smallholdings. There are conflicts between the indigenous populations and plantation owners on land rights. Sustainable oil palm production can provide an economic impulse to regional economies.
Important issues are the weak juridical and legal systems to enforce regulations related to deforestation and land clearing. Conflicts with indigenous population.
No specific GEF projects were found. Several initiatives are ongoing to arrive at solutions to environmental and biodiversity problems related to palm oil production and processing.
The private sector is strongly involved in the ongoing initiatives. Awareness of the problems and need for positive action is high.
The oil palm industry is concentrated in Indonesia and Malaysia. Some smallholder industries in Africa exist.
Soybean Major impact is via habitat conversion of Brazilian Cerrado and Amazonian forest to soybean cultivation. Pesticide use is high.
Strong competition with palm oil. The market is distorted by subsidy programs.
Major disputes between “landless” and large landowners in Brazil. Labor absorption capacity is low in the highly mechanised soybean agrofood complex. Jobs for the local community are temporary and limited to the land clearing and preparation phase.
Weak juridical and legal systems to enforce regulations on land conversion. Low price for virgin land and low-cost conversion are additional issues. Stakeholder platform exists but GM issue slows progress.
GEF has some soybean related projects in Brazil.Several projects address the issue of pesticides use in soybean production.
The powerful stakeholders are aware of the problems. However the market situation (competition, subsidies) and the GM issue have hampered progress.
Global players are the USA, Brazil and Argentina.
Sugar-cane
Habitat conversion, water use, soil degradation, pollution from chemicals & waste.Existing alternative methods, some
Market is distorted by subsidies to sugare from beet.Major driver for BMPs is cost-reduction.
Alternative methods not always adapted to smallholders’ situation.
Lack of financial incentives, fierce competition and low prices.Lack of knowledge and understanding of alternative methods.
Some complementary GEF projects that address similar issues. but no specifically related to BACP’s objectives.Some certification initiatives.
Strong influence of the private sector.Industry initiative exists.
No regional concentration
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Com-modity / Criteria
1 Global Biodiversity
2 Business Case 3 Social Impacts 4 Implementation Barriers
5 Complementary GEF and non-GEF initiatives and organisations
6. Private sector traction & degree of industry organisation
7.Regional concentration
already in use.
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ANNEX 4: KEY DOCUMENTS FROM PALM OIL, SOY, AND SUGARCANE ROUNDTABLES
I. ROUNDTABLE FOR SUSTAINABLE PALM OIL (RSPO)
The Roundtable on Sustainable Palm Oil (RSPO) is a multi-stakeholder organization created in 2001 to promote the growth and use of sustainable palm oil through co-operation within the supply chain and an open dialogue with stakeholders. RSPO brings together stakeholders from the entire palm oil value chain, including the major palm oil grower organizations (MPOA, FELDA, FEDEPALMA, GAPKI);72 more than 20 major palm oil production companies representing about one third of global palm oil production; more than 20 palm oil processors and traders, about 10 major (European) consumer goods manufacturers, five retailers, several banks and investors, environmental and social non-governmental organizations (NGOs) and other affiliate members (e.g., refiner associations, estate owner organizations, research organizations, input providers, and individuals).
One of the major achievements of the RSPO process is the recent adoption of the RSPO Principles & Criteria (RSPO P&Cs) at the 3rd RSPO Round Table in Singapore in November 2005.73 The Principles & Criteria lay the foundation for a generally accepted standard for sustainable production of palm oil and 14 production companies and organizations among the RSPO members have publicly committed to participate in the 2-year trial period to test implementation of the P&Cs.
Environmental, and more specifically, biodiversity impacts of palm oil production - in particular habitat conversion, which represents the single most important biodiversity issue for the palm oil industry - are clearly addressed in the P&Cs, in particular through:
- Principle 5 (Environmental responsibility and conservation of natural resources and biodiversity) in particular criterion 5.2 on threatened and endangered species and high conservation habitat (see box below) ; and
- Principle 7 (Responsible development of new plantings) their related sub criteria, in particular criterion 7.3 (see box below).
The RSPO also adopted, in November 2006, a Code of Conduct for its members, reproduced below.
72 Malaysian Palm Oil Association (MPOA), Federal Land Development Agency of Malaysia (FELDA, mostly smallholders), National Federation of Oil Palm Growers of Colombia (FEDEPALMA), Indonesian Palm Oil Producers Association (GAPKI). 73 http://www.sustainable-palmoil.org/ PDF/CWG/RSPO%20Principles%20&%20Criteria%20for%20Sustainable%20Palm%20Oil%20(final%20public%20realease).pdf
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Excerpt from RSPO Principles & Criteria:
Principle 5: Environmental responsibility and conservation of natural resources and biodiversity
Criterion 5.1: Aspects of plantation and mill management that have environmental impacts are identified, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement.
Criterion 5.2: The status of rare, threatened or endangered species and high conservation value habitats, if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations.
Criterion 5.3 Waste is reduced, recycled, re-used and disposed of in an environmentally and socially responsible manner.
Criterion 5.4 Efficiency of energy use and use of renewable energy is maximised.
Criterion 5.5 Use of fire for waste disposal and for preparing land for replanting is avoided except in specific situations, as identified in the ASEAN guidelines or other regional best practice.
Criterion 5.6 Plans to reduce pollution and emissions, including greenhouse gases, are developed, implemented and monitored.
Principle 7: Responsible development of new plantings
Criterion 7.1: A comprehensive and participatory independent social and environmental impact assessment is undertaken prior to establishing new plantings or operations, or expanding existing ones, and the results incorporated into planning, management and operations.
Criterion 7.2: Soil surveys and topographic information are used for site planning in the establishment of new plantings, and the results are incorporated into plans and operations.
Criterion 7.3: New plantings since November 2005 (which is the expected date of adoption of these criteria by the RSPO membership), have not replaced primary forest or any area containing one or more High Conservation Values.
Criterion 7.4: Extensive planting on steep terrain, and/or on marginal and fragile soils, is avoided.
Criterion 7.5: No new plantings are established on local peoples’ land without their free, prior and informed consent, dealt with through a documented system that enables indigenous peoples, local communities and other stakeholders to express their views through their own representative institutions.
Criterion 7.6: Local people are compensated for any agreed land acquisitions and relinquishment of rights, subject to their free, prior and informed consent and negotiated agreements.
Criterion 7.7: Use of fire in the preparation of new plantings is avoided other than in specific situations, as identified in the ASEAN guidelines or other regional best practice.
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CODE OF CONDUCT FOR MEMBERS OF THE ROUNDTABLE ON SUSTAINABLE PALM OIL74
It is fundamental to the integrity, credibility and continued progress of the RSPO that every member supports, promotes and works towards the production, procurement and use of Sustainable Palm Oil.
All Ordinary and Affiliate Members must act in good faith towards this objective and commit to adhering to the principles set out in this Code.
This Code applies to all Ordinary and Affiliate Members of the RSPO with respect to their activities in the palm oil sector and its derivatives.
1. Promotion and Commitment
1.1 Member organizations will acknowledge their membership of the RSPO, itsobjectives, statutes and by-laws, the Principle and Criteria (P&C) and its respective national interpretations and implementation process through informed and explicit endorsement.
1.2 Members will promote and communicate this commitment throughout its own organisation and to its customers, suppliers, sub-contractors and wider value chains where necessary.
1.3 Membership of the RSPO must be endorsed by a senior representative of the member organisation.
2. Transparency, reporting and claims
2.1 Members will not make any misleading or unsubstantiated claims about the production, procurement or use of sustainable palm oil.
2.2 Members are required to report annually on progress against this Code.2.3 Members will commit to open and transparent engagement with interested
parties, and actively seek resolution of conflict.
3. Implementation
3.1 Members to whom the P&C apply will work towards implementation and certification of the P&C.
3.2 Members to whom the P&C do not apply directly will implement parallel standards relevant to their own organisation, which cannot be lower than those set out in the P&C.
3.3 Members are responsible for ensuring that their commitment to the objectives of the RSPO is underpinned by adequate resources within its organisation.
74 See www.RSPO.org
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3.4 Relevant personnel within member organisations will be provided appropriate information that will enable them to work towards the objectives of the RSPO in their work.
3.5 Members will share with other members experience in the design and implementation of activities to support sustainable palm oil.
3.6 Members to whom the P&C do not directly apply will actively seek to promote sustainable palm oil and will give support to those members engaged inimplementing the RSPO P&C.
4. Pricing and incentives
4.1 Members procuring palm oil will integrate implementation and independent verification of the P&C as a positive performance measure when assessing supplier performance.
4.2 Members will adhere strictly to the RSPO anti-trust guidelines, and refrain from any behaviour which can be construed as anti-competitive practice.
5. Breaches of this Code
5.1 Members will seek to resolve grievances directly with other member organisations in a timely fashion, and will not make unsubstantiated allegations of breaches against other members.
5.2 Breaches of this Code, or the by-laws and statutes of the RSPO may lead to exclusion from the organisation.
5.3 Prior to taking public action in cases of unresolved allegations of breaches of this Code, members will report breaches to the Executive Board, which will deal with the alleged breaches in accordance with the RSPO Grievance Procedure.
5.4 Executive Board Members who are found, after due inquiry, to have breached the Code, will be replaced.
II. ROUND TABLE ON RESPONSIBLE SOY75
The goal of the Global Roundtable on Responsible Soy (RTRS) is to set up a multistakeholder and participatory process that promotes economically viable, socially equitable and environmentally sustainable production, processing and trading of soy. Early in 2006, the Members of the Organizing Committee (OC) agreed upon a Common Basis to guide the Round Table’s activities. Based upon this and the consensus achieved during the Second Round Table Conference held in Asuncion, the Organizing Committee adopted the RTRS Principles, to which its participants and members will subscribe. In November 2006, at the meeting held in Rolle, Switzerland, the Organizing Committee decided to establish RTRS as a civil association under Swiss Law, open to membership for stakeholders and parties willing to promote the goals of the Roundtable. The First General Assembly of RTRS is scheduled to be held on April 2 and 3 2007 in Sao Paulo, Brazil. This first meeting of RTRS members as a formal institution will have the important task of electing an Executive Board and designing the strategy for the Initiative over the next few years.
75 See wwww.responsiblesoy.org
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In 2007, RTRS is scheduled to set up the Criteria Development Process in order to seek consensus and draft the criteria that shall apply to responsible soy production, processing and trading of soy on a global basis. RTRS welcomes all suggestions from members of RTRS or other stakeholders regarding key experts in order to ensure that high standards of technical and scientific expertise are included in the work of the Criteria Development Group.
The Common Basis and the Principles are reproduced below.
COMMON BASIS FOR THE ROUND TABLE ON RESPONSIBLE SOY (RTRS)
The Roundtable on Responsible Soy (RTRS) was set up by a group of organizations and companies committed to the responsible production, processing and trading of soy. These institutions established an Organizing Committee (OC) with a view to leading the RTRS through its initial stages until a formal institutional framework can be put in place. The OC was responsible for organizing the first Roundtable Conference on Sustainable Soy held in Foz do Iguaçu, Brazil, in March 2005. Seeking a transparent and open process, The Organizing Committee has agreed upon the following Common Basis, Goals and Mission for the RTRS.
GoalPrepare, implement and follow up a global multi-stakeholder process that promotes responsible production, processing and trading of soy, involving the development of a definition of responsible soy production, processing and trading with criteria that address economic environmental, and social issues.
ObjectivesThe objectives of the RTRS are to facilitate a global dialogue on responsible soy thatwill:
Act as a forum for reaching consensus among stakeholders. Communicate issues regarding responsible soy production, processing and trading to a
wide range of global stakeholders. Act as a forum for developing and promoting criteria for responsible soy production,
processing and trading. Mobilize participants to the multi-stakeholder process. Organize Roundtable Conferences. Act as a recognized international forum monitoring the status of responsible soy
production, processing and trading.
TransparencyFor the benefit of the RTRS process and commitment of participants, all interested stakeholders shall have free access to all information, documents and papers produced during the process.
Compliance with National Laws
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It is essential that all applicable labor, environmental, consumer protection, information and labeling laws be followed by all parties involved in the production, processing and trading of soy.
RepresentationThe Round Table on Responsible Soy aims to have representation of all stakeholders and sectors related to soy and its impacts. This representation must be equally balanced on the Organizing Committee. The results of the RTRS process are to be applicable by all types of producers, ranging from small and medium to large landholders, including family farmers, traditional communities, and international companies. It is essential that all stakeholders participate in the process, regardless of whether they grow, sell or consume organic, conventional or genetically modified soy.
Environmental ResponsibilityThe RTRS process will promote better practices for mitigating environmental impacts and conservation and improvement of natural resources and in particular, water, soil and biodiversity.
Social ResponsibilityThe RTRS will promote the enhancement of positive and mitigation of negative social impacts.
Economic ResponsibilityThe RTRS process will include clear cost-benefit assessments of the requirements for responsible soy production and related agronomic practices.
Genetically Modified SoyGenetically modified soy is currently being cultivated in major growing areas such as Argentina, many parts of Brazil, Paraguay and the USA. Opinions on the benefits and risks of biotechnology and the GM trend vary greatly. Individual Organizing Committee members have different standpoints on genetically modified soy. The Round Table process will not promote the production, processing or trading of either genetically modified or non-genetically modified soy.
PRINCIPLES OF THE ROUNDTABLE ON RESPONSIBLE SOY (RTRS)
The present document constitutes the Final Draft of the RTRS Principles as approved by the Organizing Committee at the meeting held in Rolle, Switzerland, on November 8, 2006. These nine Draft Principles incorporate the input from the Second Roundtable Conference Working Groups, together with subsequent comments received from a wide range of stakeholders. This Draft will be given final approval by the Principles, Criteria and Verification Development Group to be set up by RTRS in early 2007.
Introduction
RTRS considers that transparency and accountability are core values for a multi-stakeholder initiative, that clear cost-benefit assessment of the requirements for responsible soy production and related agronomic practices are necessary to enhance the benefits and reduce the negative
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impacts of soy production, and that legal compliance should constitute the minimum threshold to which actors in the soy value chain should commit, while implementing management practices based upon the concept of continuous improvement related to economic, social and environmental responsibility. These Principles shall be applied and interpreted in accordance with the requirements and needs of each country or region.
Economic Responsibility
“The soy value chain recognizes that the adoption of socially responsible and environmentally sound practices that provide global and local benefits is the collective responsibility of all stakeholders. With a view to enhancing the benefits of responsible soy production while reducing the negative impacts of non-responsible practices, producers, processors, traders and consumers shall therefore equitably share the costs and burdens of meeting the Principles of RTRS.”
1. Impact of Infrastructure
The soy value chain, shall ensure, within the scope of activities of individual stakeholders, that due consideration is given to enhancing benefits and mitigating the impacts of infrastructure investments on ecosystems and local communities required by production, transport, processing and trading of soy.
Social Responsibility
“The RTRS will promote the enhancement of positive and mitigation of negative social impacts derived from soy production, processing and trading, in compliance with universal human rights and in accordance with the following Social Principles”
2. Compliance with Labor laws and requirements
The soy value chain shall comply with all applicable national and local labor, occupational health & safety regulations and all applicable ILO conventions,
3. Respect for Land Rights
The soy value chain shall ensure that soy producers and other suppliers The soy value chain shall ensure that soy producers and other suppliers comply with all applicable national and local regulations related to land rights, including but not limited to, ensuring legal title to land, compliance with contractual obligations and respect for the formal and/or customary land rights of local communities including indigenous peoples
4. Small scale and traditional land use
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The soy value chain recognizes the importance of small scale and traditional land use systems and shall adopt measures to integrate and support small scale producers into the chain of value in accordance with local conditions and practices
5. Rural communities and migration
The soy value chain shall adopt practices that contribute to the long-term social and economic well-being of local communities
Environmental Responsibility
The RTRS process will promote better practices and a continual improvement approach for mitigating environmental impacts and ensuring conservation and improvement of natural resources and in accordance with the following Environmental Principles:
6. Water as a key resource
The soy value chain recognizes the importance of water as a key resource for agriculture and human development and should evaluate and address all qualitative and quantitative hydrological changes induced by or related to soy production, with a view to maintaining available water resources in quantity and quality.
7. Soil as a key resource
The soy value chain recognizes that soil quality is key to maintaining agricultural productivity and should adopt agronomic practices that avoid soil erosion and degradation, in addition to maintaining and enhancing overall soil quality.
8. Protection of Biological diversity
The soy value chain recognizes the importance of biological diversity at all levels and should adopt management practices that conserve biological diversity and fragile ecosystems in order to minimize and avoid loss of natural habitat.
9. Responsible use of agrochemicals
The soy value chain supports the overall reduction of agrochemical use in order to minimize impacts on human health and the environment
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III. BETTER SUGARCANE INITIATIVE (BSI)
Following an initial technical meeting in June 2005, the Better Sugarcane Initiative arrived at the following list of key social and environmental issues in sugarcane production and milling:
Field environmental impacts
- Soil health (chemical & physical fertility, organic matter, biodiversity- Water use (water demand, water use efficiency)- Generation of effluents (soil erosion, chemicals & nutrients in run-off/drainage)- Loss of habitat
Labour issues
- Work place health & safety- Child labour- Casualisation of labour; ~18M sugar workers- Wage levels
Community impacts
- Access to water- Health- Education
Processing impacts
- Food safety- Worker safety- Mill environmental issues
Dust Noise Smoke & ash Effluents (BOD vinasse)
- Water use
.
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ANNEX 5: DEFINITION OF HIGH CONSERVATION VALUES
The High Conservation Value concept was devised in the context of forest certification (High Conservation Value Forests or HCVF), but is also relevant to all kinds of ecosystems and habitats. It has developed into a valuable, flexible conservation tool, with practical applications in land-use planning, conservation advocacy, and the design of responsible purchasing and investment policies.
The High Conservation Value (HCV) Resource Network is a network of organisations and individuals using the HCV approach, including: forest owners and managers; buyers, suppliers and certifiers of sustainable timber, palm oil, soy, and non-timber forest products; international development agencies; and environmental and social NGOs. The Network promotes practical conservation by supporting collaboration, providing information on the evolving usage of HCVs, and ensuring that a consistent approach to HCVs is understood and applied throughout the world.
What is the HCV Network’s mission?
The overall purpose of the Network is the protection of High Conservation Value areas, which it seeks to achieve by promoting widespread understanding and adoption of the HCV concept.
The Network’s Mission and core concepts are set out in a Charter, which commits its members “to maintain and enhance critical social and environmental values of forests and other ecosystems as part of responsible land management, and to advance locally adaptable management strategies through the
development and use of the HCV approach.”
The Network aims to do this specifically by: increasing collaboration and cooperation, promoting consistency and best practice, enabling local-level approaches to implementation.
The Charter also details the structure of the Network and its shared view of the HCV concept and implementation.
Who is involved?
The Network has been developed by an Advisory Group comprising the following organisations: ForestEthics; Forest Peoples Programme; Forest Stewardship Council (FSC); Greenpeace International; Mondi; International Tropical Timber Organization (ITTO); Tetra Pak; Universidad Nacional Experimental de Guayana; World Bank; World Business Council for Sustainable Development (WBCSD), World Wide Fund for Nature (WWF), the World Conservation Union (IUCN), and The Nature Conservancy (TNC).Network Structure
Oversight and direction for the Network is provided by a Steering Group, which meets twice a year and is composed of representatives of users of the Network. The Steering Group includes all of the founding members, and additional representation is being sought from government, forest owners, and indigenous peoples.
Day to day management of the Network is undertaken by a Secretariat, provided by ProForest in Oxford, UK. The Secretariat
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is responsible for central facilitation of the Network, maintaining the network website and managing the budget.
The Steering Group oversees the Secretariat; current co-chairs of the Steering Group are Mr. Mario Abreu (Tetra Pak) and Dr. Marcus Colchester (Forest Peoples Programme).
What does the Network do?
The Network organizes Discussion Groups, which are open to anyone with an interest in the development and application of the HCV approach, and Working Groups made up of Network participants, including technical experts and key stakeholders.
These activities provide a consensual process for resolving HCV related issues, for developing new HCV resources, including improved guidance material, toolkits and training, and for exchanging ideas and initiating projects.
As the Network grows, it will also catalyse other activities to further develop, extend and improve the HCV concept, including support for local level and pluralistic approaches to implementation.
The Network also maintains a website which provides an overview of the High Conservation Value concept, its development and practical uses, and offers access to a wealth of useful resources, such as global and national HCV Toolkits, translations of key documents, country profiles, background information (e.g. HCV methodologies),
and links to useful sites. The website also supports a searchable database of HCV practitioners, as well as summaries of projects where the HCV approach has been used.
Who can participate?
Anyone can access the information on the Network website, and take part in Network Discussion Groups.
To take a more active role, individuals and organizations who are in agreement with the Network’s Charter are invited to sign up as Network Participants, by registering on the Network website. Participants can be involved in all Network activities, including membership of the Steering Group and Working Groups. Participants who are also HCV practitioners can post their interests and experience in the searchable Practitioners’ Database.
The Network is also seeking organizations or individuals interested in becoming Regional Partners to provide local support and information on HCV in local languages.
There are many ways to get involved: Become a Participant (by signing up online to register support for the Network’s charter), Join a Discussion Group, Register online as an HCV practitioner, Provide a summary of an HCV project for the website, Volunteer as a Regional Partner.
More information on all aspects of the Network can be found on the website.
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The 6 High Conservation Values The key to the concept of HCV Areas is the identification and maintenance of High Conservation Values (HCVs). The Network focuses on the following six main types of High Conservation Values:
HCV1 AREAS CONTAINING GLOBALLY, REGIONALLY OR NATIONALLY SIGNIFICANT
CONCENTRATIONS OF BIODIVERSITY VALUES (E.G. ENDEMISM,
ENDANGERED SPECIES, REFUGIA).
HCV2 GLOBALLY, REGIONALLY OR NATIONALLY SIGNIFICANT LARGE LANDSCAPE-LEVEL AREAS WHERE VIABLE POPULATIONS OF MOST IF NOT ALL NATURALLY OCCURRING SPECIES EXIST IN NATURAL PATTERNS OF DISTRIBUTION AND ABUNDANCE.
HCV3 AREAS THAT ARE IN OR CONTAIN RARE, THREATENED OR ENDANGERED ECOSYSTEMS.
HCV4 AREAS THAT PROVIDE BASIC ECOSYSTEM SERVICES IN CRITICAL SITUATIONS (E.G. WATERSHED PROTECTION, EROSION CONTROL).
HCV5 AREAS FUNDAMENTAL TO MEETING BASIC NEEDS OF LOCAL
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The High Conservation Value Resource Networkwww.hcvnetwork.org [email protected]
SecretariatNilofer Ghaffar (Ms), Co-ordinator HCV Resource Network: [email protected]
Phone +44 (0) 1865 243439 ext 117, Fax +44 (0) 1865 244820
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ANNEX 6: PORTFOLIO OF SAMPLE BACP PROJECTS
This Annex presents seven sample projects which BACP has developed with partners in the course of the PDF-B.
List of sample projects presented in this Annex.
Project 1: Regional High Conservation Value (HCV) Assessments to Identify Areas for Palm Oil Development and Conserve HCV Landscapes in Borneo and Sumatra.
Project 2: Protecting Primary Forests in East Kalimantan by Developing High-Performance Palm Oil Plantations on Land Previously Degraded by Intensive Logging.
Project 3: Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain.
Project 4: Help the Better Sugarcane Initiative to Document Best Practices That Protect on Farm and Landscape Level Biodiversity of Global Significance.
Project 5: Participation in RSPO Technical Working Groups on Biodiversity.
Project 6: Working with Smallholders to Reduce Biodiversity Impacts from Palm Oil production in Indonesia.
Project 7: Design and Test Investment Screens to Reduce Biodiversity Impacts and Brand Risks of Bank Investments.
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Project number: 1
Project number: 1Project Title: Regional High Conservation Value (HCV) Assessments to Identify
Areas for Palm Oil Development and Conserve HCV Landscapes in Borneo and Sumatra
Target Commodity: Palm oil Target Country: Indonesia (East, Central & West Kalimantan; Aceh & North
SumatraLead partner(s): GRASP/Indonesian Resource Institute/ The Nature ConservancyProgram Activity Component: Component 1 (Enabling environment) .Estimated grant from BACP: US$400 ,000 out of total budget of US$1,700,000Estimated leverage: >1:3
Biodiversity that the project will seek to protect/preserveBorneo and Sumatra represent distinctive ecoregions within the biodiverse Southeast Asian rain forests, and they host a wide range of ecosystems and habitats. The lowland forests are among the richest in plant species diversity in the world. Rich species diversity is found among different habitats as well, such as the lowland forests on different soils, swamp forests and peat forests. The project addresses the most endangered hierarchical levels of biodiversity on these islands: the landscape-level forests that contain different ecosystems, rich mosaics of habitats and species, and genetic diversity between populations of key species. These large areas are capable of maintaining viable populations of endangered species that live at low density, such as orangutans, tigers and elephants. Rich habitat mosaics within contiguous areas of forest allow seasonal migrations by diverse birds and mammals, maintaining their populations and their essential seed-dispersing and pollinating functions. These large landscapes also typically encompass critical watersheds and many environmental services critical for sustaining development.
Baseline scenarioLowland Southeast Asian forests are the most biodiverse in the world and are critical habitats for flagship species like orangutans, tigers and elephants. These areas are highly sought after for palm-oil plantation development. Currently, land development licenses are issued without land-use planning. Thus the integrity of the large, habitat-rich, landscape-level forests which are critical for conservation of biodiversity is undermined as forests are reduced and fragmented. Unless methods of spatial planning for palm oil development are improved, projected expansion of oil palm plantations over the coming years threatens to irrevocably compromise conservation of biodiversity in tropical forests, especially in the remaining lowlands of Borneo and Sumatra.
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BarrierWhile the criteria of the Roundtable on Sustainable Palm Oil (RSPO) explicitly require the use of HCV techniques at plantation level (criterion 7.3), lack of knowledge on HCV areas in the region prevents companies from integrating biodiversity considerations in their land development plans.
Furthermore, HCV and land use planning at the regional level is a public good without a mechanism for all potential oil palm plantation developers and for other beneficiaries to contribute to the costs. Finally, there are financing constraints, as setting up industry-wide HCV database is too expensive for any one or a few companies to fund.
Project DescriptionThe objectives of the project are to (a) identify the remaining landscape-level forests critical for conserving ecosystem, habitat, species and genetic diversity in Sumatra and Borneo (b) facilitate multi-stakeholder support for allocating these HCV landscapes for uses that do not compromise their conservation function, and other lands for oil palm plantation development (c) to create partnerships among conservation, industry and government agencies to monitor and manage long-term land use solutions for each of these landscapes (d) engage the palm oil industry and local governments in a priori designation of HCV to comply with RSPO P&C, and establish 3rd party monitoring so that the palm oil industry can receive tangible marketing benefits for their responsible stewardship of these HCV regions.
The project will engage a broad range of stakeholders including (a) international conservation NGOs active in Borneo and/or Sumatra with expertise in HCV assessment (b) Indonesia-based NGOs, (c) scientific partners specialized in Remote Sensing/GIS landscape level monitoring database & biodiversity assessments (d) HCV assessment specialists (Smartwood and/or Proforest), the palm oil industry and leading production companies (through RSPO secretariat and GAPKI, the association of Indonesian palm oil producers), as well as the Indonesian government.
Alternative ScenarioThe project will demonstrate how land-use planning BMP techniques can conserve tropical forests of high biodiversity conservation value and allocate non-HCV land to oil palm plantation and other development uses. Especially important is the identification and management of large HCV areas critical for ecosystem, habitat, species and genetic biodiversity conservation. The project would enable one-time regional assessments, avoiding the expensive and impossible task of training company personnel and duplicating cost and effort.
Estimated overall budget and sources co-fundingThe total cost of the project is roughly estimated to be US$ 1,700,000 out of which US$ 400,000 are expected to be co-financed by various other sponsors (US$ 500,000 in-kind and US$ 800,000 in grants). BACP would provide the remaining US$ 400,000.
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Replicability and sustainabilityThrough industry organizations (e.g., RSPO, GAPKI) the results of the project will be made available to all companies that wish to operate in the region, allowing cost-effective, transparent plantation and smallholder development in the selected regions, and thus removing a barrier to the implementation of landscape-level biodiversity conservation.The model is also easily transferable to other tropical regions, and of course to other provinces of Indonesia, enabling efficient replication of benefits to other regions of high biodiversity forests. Finally, the model is relevant to other agricultural commodities.
Project number: 2
Project number: 2Project Title: Protecting Primary Forests in East Kalimantan by Developing
High-Performance Palm Oil Plantations on Land Previously Degraded by Intensive Logging.
Target Commodity: Palm oil Target Country: Indonesia Lead partner(s): PT Socfindo, Medan, Indonesia (RSPO member)Program Activity Component: Component 2: Support better production via site-
specific projects.Estimated grant from BACP: Socfindo needs to undertake a land survey before being in a position to estimate costs.Estimated leverage: at least 1:2
Biodiversity that the project will seek to protect/preserveEast Kalimantan is still covered by relatively intact forests rich in biodiversity, which are part of the Sundaland biodiversity hotspot. In some areas, palm oil companies have received licenses for land development on concessions that include areas of remaining forest. Threats on remaining biodiversity on these lands mostly stem from the possibility of irresponsible development of these concessions, including uncontrolled logging, converting High Conservation Value (HCV) lands to agricultural purposes and encroachment of other activities in remaining primary forest area.
This project specifically addresses on-farm biodiversity on an existing concession, belonging to PT Socfindo Medan. It will address better management practices including landscape management and in particular, protection of remaining areas of primary forest/selected high-conservation value forest at the plantation/concession level. The project focuses on mitigating negative impacts of intensive logging, the role of palm oil plantations as buffer zones and barriers against further infiltration of illegal activities and uncontrolled squatting in primary forest areas.
This project demonstrates landscape management practices on a concession level, and thus complements project Project 1 (Regional High Conservation Value (HCV) Assessments to Identify Areas for Palm Oil Development and Conserve HCV
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Landscapes in Borneo and Sumatra), which focuses on the broader landscape management issues at the regional level.
Baseline scenarioWhile the voluntary standard RSPO principle 7 (Responsible development of new plantings), explicitly identifies these better management techniques at a plantation level (see Annex 4), these practices are not yet widely adopted by the industry. The feasibility of these principles and criteria has yet to be demonstrated and documented.
BarrierBarriers to large-scale adoption of concession-level landscape management practices include corporate lack of awareness of the issues, lack of know-how and practical experience in implementing the practices, and reluctance by the industry to implement practices which are not yet well understood.
Project DescriptionThis demonstration project is proposed by PT Socfindo Medan, the Indonesian subsidiary of a Socfin SA, a large international commodities concern active in palm oil in Indonesia since 1911. The project goal is to develop a high-performing oil palm plantation on a concession previously degraded by intensive logging, to protect the remaining areas of primary forests and to reforest other areas with rubber and teak. It is currently envisaged that the concession(s) would cover an area of some 200,000 ha of which about 60,000 ha of degraded forestry land would be converted to oil palm development, and the balance would be conserved forest, or the subject of a reforestation project.
The project seeks to balance the development of a high-performing oil palm plantation with the improvement of conservation areas, with the explicit purpose of mitigating the negative impact on biodiversity of oil palm plantations. The project will combine forestry, plantations, biodiversity conservation, and social development.
Alternative ScenarioThe project will involve (a) integrated mapping of the concession, (b) an evaluation of the High Conservation Value (HCV) lands on the concession, (c) zoning of the three parts of the project, (d) preparation of the Environmental Impact Assessment (EIA), (e) development of a forest preservation program, and (f) reforestation and oil palm development program.
The expected outcomes of the project are (a) to evaluate the feasibility of RSPO principle 7, and (b) to demonstrate the feasibility of further economic and social development in the region while protecting the biodiversity in primary forest and selected HCV forests.
Replicability and sustainabilityThis project, implemented by and RSPO member, who is one of the palm industry’s leading companies in terms of sustainability practices, will demonstrate the applicability of RSPO criteria related to biodiversity. Results from this pilot testing project will also feed into the RSPO pilot testing process for Criteria 7. The project could become an
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important reference for other companies seeking to start activities in East Kalimantan or elsewhere in Indonesia and could therefore have a high leverage and replication effect. As it will provide a platform for sharing experience, it will also accelerate adoption of similar practices by other companies in the industry.
Project number: 3
Project Title: Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain.
Target Commodity: CocoaTarget Country: Côte d’Ivoire Lead partner(s): Zamacom S.A (Côte d’Ivoire)Program Activity Component: Component 3: Support increased demand for
products with more positive biodiversity impactEstimated grant from BACP: US$600,000 (total project size, US$1,800,000)Estimated leverage: 1:2
Biodiversity that the project will seek to protect/preserveCocoa cultivation takes place in some of the most biodiverse tropical forests in the world. To date, about 8 million hectares of tropical forests have been lost to produce cocoa. Historically, most of this land would be in what today are called biodiversity hotspots. Average cocoa plantations last only 25 to 30 years so expansion into forest habitat is the norm. This project seeks to protect on-farm biodiversity and reduce environmental impacts from cocoa plantations on surrounding eco-systems through Better Management Practices (BMPs) such as improved shade coverage by planting companion/shade trees, protection of indigenous forest trees, protection of water courses, integrated pest management (IPM), proper application of phytosanitary products, etc. Not only do these practices measurably reduce the environmental impacts of cocoa production, they also extend the useful life of cocoa plantations thus reducing the tendency of cocoa production to expand into new areas.
Baseline scenarioOver the last four years, Zamacom S.A.76(Côte d’Ivoire), a subsidiary of the global trading company Ecom Agroindustrial Corp. Ltd77 has already made significant investment to develop, on a pilot basis, a comprehensive model of biodiversity-friendly cocoa farming to improve the economic, environmental and social sustainability cocoa farmers.
76 Zamacom, S.A., Ecom’s wholly-owned origin operation in Ivory Coast started its cocoa sourcing and export operations in 1999 and is now one of the major cocoa shippers of the country. Zamacom has two main offices located in each of the Ivorian ports (Abidjan and San Pedro) where cocoa is re-conditioned (cleaned, dried and re-bagged) in their plants. On top of these 2 plants, Zamacom operates 6 buying centres located upcountry in the main cocoa producing regions. Zamacom today has about 90 employees and realises a turnover of over US$150 million per crop (about 90,000 mt of cocoa).77 Ecom Agroindustrial Corp. Ltd. is a fully integrated commodity origination and processing family of companies with a global presence in more than 20 countries. From its roots in Barcelona in the 1840's, ECOM has grown into a leading processor and merchandiser of coffee, cotton and cocoa in major producing and consuming countries, with ancillary agricultural operations in oilseeds and hogs. Total year-end 2004 sales for the company are around $US 1.8 billion.
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Thanks to its strong presence in cocoa production regions in Côte d’Ivoire, and working in a supply-chain partnership with selected cooperatives, Zamacom assists eligible farmers to make sure the cocoa delivered matches the required criteria and is produced according to Better Management Practices. Using an Identity Preserved Scheme (IPS), the delivered cocoa is traceable to the farm, which ensures added-value that the final user (buyer or off taker) will be willing to pay for, and which allows the farmer to capture a price premium.
BMPs such as those promoted by the project can increase farm lifetime by 25-50%, and can increase production by around 15%. They reduce production costs by 10-20%, and improve overall quality, thereby further increasing profitability.
This supply-chain partnership builds capacity at cooperative (institutional) and farmer level and involves the following activities: (a) build capacity at cooperative level to ensure financial credibility, transparency of management, knowledge of the member base and baseline data collection (b) hands-on training of farmers through instruction on demonstration plots (c) establishment of project logistics and product traceability (e.g., local bagging stations at coop level, local cocoa quality certification, etc.). However, Zamacom currently restricts such supply-chain partnership activities to a few selected cooperatives and only works with 3 cooperatives representing about 2,500 farmers (owning 10,000 hectares and producing about 3,000 MT of cocoa per year).
BarrierToday less than 15% of cocoa in Cote d’Ivoire comes from cooperatives and only a small percentage of these newly founded structures routinely provide assistance and quality services to their farmer base. Farmers therefore lack knowledge on BMPs and impacts on biodiversity. Furthermore, cooperatives lack knowledge and managerial capacity to put in place the appropriate procedures allowing traceability of cocoa.
Project DescriptionBACP grants would enable Zamacom to scale up and to extend its supply-chain partnership assistance to a more farmers, and across a wider geographic range, ensuring faster availability of greater volumes of sustainable cocoa, and increasing the mainstreaming of biodiversity friendly cocoa.
Alternative ScenarioUnder the alternative scenario, the project targets to achieve a total production of about 17,000 MT of biodiversity friendly cocoa (representing about 1.5% of production in Côte d’Ivoire) within three years, extending the scope of the project to eight cooperatives and about 7,000 farmers, covering a total plantation area of 30,000 hectares.
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Estimated overall budget and sources co-funding
Depending on scenarios, the total cost of the project over three years is estimated to be US$ 1,800,000 (US$ 600,000 per year). One third would be financed by BACP funds, one third by Zamacom, and the remainder by a third party. Another intermediate scenario with a total cost of US$ 900,000 assuming a 33% contribution by BACP and 67% by Zamacom and slightly less ambitious targets has also been developed (see Annex 9, Incremental cost analysis).
Replicability and sustainabilityOnce the project is underway, Zamacom’s parent company ECOM has the intention to replicate the model through its operations in other production regions (Cameroon, Indonesia, Mexico and Nigeria). The project thus has a high replication and market transformation potential both in the BACP target regions and beyond.
The key to success of this approach lies in the effective involvement of all supply chain stakeholders from farmer to end-user: because the Better Practices used respond to market demand, participants at each level of the supply chain from their involvement. This ensures the model’s sustainability. In addition, the BMPs will increase farmers’ productivity and profitability, and will increase farm lifetime, all factors that contribute to sustained use of these practices in the long term.
Project number: 4
Project number: 4Project Title: Help the Better Sugarcane Initiative to Document Best Practices
That Protect on Farm and Landscape Level Biodiversity of Global Significance.
Target Commodity: SugarcaneTarget Country: Brazil, possibly othersLead partner(s): Better Sugarcane Initiative (BSI)Program Activity Component: Component 1 (Enabling environment)Estimated grant from BACP: approximately US$5,000 per business caseEstimated leverage: 1:2
Biodiversity that the project will seek to protect/preserveThis project will document practices that can protect biodiversity of global significance affected by sugarcane production in Brazil (and, indirectly, in other countries as well).
Baseline scenarioAt its meeting in January 2006, the Better Sugarcane Initiative members agreed that it is possible to reduce the key impacts of producing sugarcane production throughout the world. In fact, several different BMPs are used to do this in sugarcane-growing regions around the world. Unfortunately, little documentation is available about either the performance level that can be achieved, how much improvement is involved over a baseline, and the cost. Members proposed to begin a phased documentation effort, that
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would start by creating a clearinghouse to document and explain a wide range of better practices that different types of producers can use to achieve any given standard.
The next step would be to select practices for further study, in order to understand the business case for the different practices as well as to have a means to compare the performance and costs of a broad range of practices.
In the baseline scenario, specific issues related to impacts of production methods on biodiversity of global importance would not be taken into account.
BarrierThe BSI lacks the specific technical skills needed. Industry participants in the roundtable don’t yet know how to frame the specific biodiversity issues.
Project DescriptionBACP would cover the costs of an Expert who would perform a quick review of the BMP case studies being considered, assess the ones that have the most relevant to biodiversity of global significance, and then work with the people conducting the case study to guide them on its preparation, to make sure that biodiversity issues are addressed. The Expert will also ensure that biodiversity issues are fully reflected in the ensuing business case analyses.
Alternative ScenarioIn the alternative scenario, issues related to biodiversity of global significance will be incorporated into the BMP case studies and business case analyses produced by the BSI.
Estimated overall budget and sources co-fundingIt is estimated that it would cost from US$5,000-US$25,000 to prepare business case analyses for specific BMPs that relate to biodiversity. BACP would fund one-third of the costs and BSI members would fund the remaining two-thirds. The non-biodiversity related BMPs will not be funded by BACP.
Replicability and sustainabilityThe business cases established via the project would feed into subsequent BSI activities related to defining target performance levels and related Principles and Criteria, and to field-testing in different production landscapes.
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Project number: 5
Project number: 5Project Title: Participating in RSPO Technical Working Groups on BiodiversityTarget Commodity: Palm oilTarget Country: Indonesia Lead partner(s): Roundtable on Sustainable Palm Oil (RSPO)Program Activity Component: Component 1 (Enabling environment)Estimated grant from BACP: US$20,000Estimated leverage: 1:2
Biodiversity that the project will seek to protect/preserveThis project generally addresses biodiversity of global significance located in Indonesia.
Baseline scenarioThe Roundtable for Sustainable Palm Oil (RSPO) is planning Technical Working Groups (TWG) in the areas of Verification and on Two-year Principles and Criteria trial implementation. In the baseline scenario, these working groups would not pay specific attention to issues related to biodiversity of global significance.
BarrierThe RSPO members do not have the capacity to address biodiversity issues in detail.
Project DescriptionBACP would participate in two RSPO Technical Working Groups, the Verification Working Group and the Working Group on Two-year Principles and Criteria (P&C) trial implementation. The Verification Working Group is developing a verification methodology for RSPO that would be used to identify sustainable palm oil produced and supplied according to the P&C formally adopted by the roundtable. The Trial Implementation Working Group will test and evaluate various elements or criteria of the P&C for consistency, applicability, practicality and effectiveness in addressing the concerns. BACP’s participation would provide each working group with credible information leading to strategies for biodiversity conservation.
Alternative ScenarioThrough BACP’s participation in these two Technical Working Groups, the Program will ensure that biodiversity issues are fully taken into account by the TWGs.
Estimated overall budget and sources co-fundingBACP would contribute US$20,000 per TWG, which would be matched 2:1 by the Roundtable membership. Costs would cover the expenses related to a biodiversity and agriculture expert’s time and travel.
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Replicability and sustainabilityThe work of the Technical Working Group feeds into a process that will lead to the adoption and implantation by the RSPO members of the Principles and Criteria that the Project would be testing.
Project number: 6
Project number: 6Project Title: Working with Smallholders to Reduce Biodiversity Impacts from
Palm Oil Production in Indonesia. Target Commodity: Palm oilTarget Country: Indonesia Lead partner(s): Wilmar GroupProgram Activity Component: Component 2: Support better production via site-specific projects.Estimated grant from BACP: US$375,000 over three years.Estimated leverage: 1:3
Biodiversity that the project will seek to protect/preserveBorneo and Sumatra represent distinctive ecoregions within the biodiverse Southeast Asian rain forests, and they host a wide range of ecosystems and habitats. The lowland forests are among the richest in plant species diversity in the world. Rich species diversity is found among different habitats as well, such as the lowland forests on different soils, swamp forests and peat forests. The project addresses the most endangered hierarchical levels of biodiversity on these islands: the landscape-level forests that contain different ecosystems, rich mosaics of habitats and species, and genetic diversity between populations of key species. These large areas are capable of maintaining viable populations of endangered species that live at low density, such as orangutans, tigers and elephants. Rich habitat mosaics within contiguous areas of forest allow seasonal migrations by diverse birds and mammals, maintaining their populations and their essential seed-dispersing and pollinating functions. These large landscapes also typically encompass critical watersheds and many environmental services critical for sustaining development.
Baseline scenarioOil palm mills have a symbiotic relationship with surrounding smallholders: the mills depend on the smallholders’ production for their economic viability, and the smallholders, for reasons of geography and perishability are captive sellers to the mill (Fresh Fruit Bunches must reach the mill within 24 hours). The mills are therefore in a position to work with smallholders to improve their faming practices. Smallholders in Indonesia are generally only about 70% as productive as plantations, therefore, there is ample room for efficiency improvements. As many of these improvements involved reduced use of inputs, there is a clear benefit to biodiversity.
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BarrierWhile BMPs for large-scale plantations are reasonably-well known, smallholders need BMPs that require more labor than capital, and that can be effective on 1-5 hectares; these have not yet been documented. Smallholders therefore lack the knowledge to implement these measures.
Wilmar (and other producers) are interested in improving the environmental practices and overall efficiency of their surrounding smallholders, but they lack the technical skills required.
Project DescriptionFor the proposed project, BACP would enter in a partnership with IFC’s Linkages project and with the Wilmar Group, to assist smallholders who have a partnership with Wilmar to reduce their impact on biodiversity. Project components are likely to be:
1) development, jointly with Roundtable on Sustainable Palm Oil (RSPO), of criteria for sustainability at smallholders level; BACP funds would focus specifically on those practices which lessen farming impacts on biodiversity of global significance.
2) implementation of a pilot/research Program around one or several Wilmar operations in Indonesia.
3) feedback/dissemination of results and lessons learned to other RSPO members and beyond; BACP funds would ensure that results and lessons related to biodiversity are clearly articulated.
4) participation in the RSPO working group on smallholders; BACP funds would ensure that biodiversity issues are raised with the working group and understood by participants, and that the working group output includes recommendations related to the definition, testing, and adoption of economically viable BMPs that lessen the impacts of production on biodiversity.
Alternative ScenarioThe project will bring benefits at several levels. The smallholders trained will improve their practices, leading to a lower biodiversity impact in the areas they farm. In addition, because BACP will prepare a case study on the project and will disseminate it to other roundtable members, the practices that were ground-tested through the project can be adopted by a large number of mills that have relationships with surrounding smallholders.
Estimated overall budget and sources co-funding. The cost of project overall is estimated at US$1.5 million over 2-3 years. BACP would contribute 25% (US$375,000) of the cost of the project (1:3 leverage). Remaining expenses would be covered by Wilmar and by other IFC funds. It is expected that BACP’s funds would largely be allocated to items 1), 3), and 4) above, whereas the company itself would cover the operational costs related to training.
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Replicability and sustainabilityThe project’s industry partner, the Wilmar Group, has agreed to share the results of the project with other members of the Roundtable for Sustainable Palm Oil (RSPO) thus making its methods and findings available to other growers.
Indonesian smallholdings tend to be 70% less productive than nearby plantations. The profitability of the mills operated by large plantations depends on the level of throughput from the plantation, but also from surrounding smallholders. To the extent that a plantation can increase the productivity of its smallholders, the profitability of its mill will increase. Thus there is a built-in incentive for replication.
The economic aspects of the project are also the key to its sustainability. The productivity gains and associated profits generated by the proposed practices will lead to their sustainable adoption by smallholders.
Project number: 7
Project number: 7Project Title: Design and Test Investment Screens to Reduce Biodiversity
Impacts and Brand Risks of Bank Investments.Target Commodity: Palm oil Target Country: Indonesia & Malaysia (but also applicable to other countries)Lead partner(s): WWF Indonesia, HSBC, Profundo, Sawit Watch and possibly
other banks within RSPOProgram Activity Component: Component 4: Encourage the development of financial
services to support biodiversity-friendly practices.Estimated grant from BACP: US$26,000 out of a total project size of US$80,000Estimated leverage: >1:2
Biodiversity that the project will seek to protect/preserveIn Indonesia and Malaysia, palm oil production and expansion are a concern for the Sundaland hotspot (Borneo, Sumatra, Java, and Bali). Habitat conversion from the expansion of oil palm plantations has a devastating impact not only on the lowland tropical forests which have more tree species per hectare than any other forests studied to date, but also directly on other plant and animal species. Oil palm poses the most significant threat to the widest range of endangered megafauna of any agricultural crop. Species that are affected directly include Asian elephant, Sumatran rhinoceros, tigers, and orangutans. Conversion of natural forest to oil palm has also emerged as the major threat to orangutan populations and habitats, in particular for major populations in lowlands with diversity of dryland, swamp and/or peat forests, where oil palm has made major encroachments. Mammal species density found in palm oil plantation is less than one seventh of the density in primary forests78.
78 There are nearly eighty mammal species found in Malaysia’s primary forests, just over thirty in disturbed forests, and only eleven or twelve in oil palm plantations. Source: Wakker, Eric. 1998. Lipsticks from the rainforest. WWF Germany.
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Land development projects for palm oil plantations require large amounts of capital and financial institutions (such as domestic and international banks) can play a key role in influencing their clients’ land development decisions.
Baseline scenarioLeading international banks have developed environmental and social policies and screening procedures to ensure that environmental and social consideration are taken into account in their lending and investment decisions.
However, most banks’ policies and procedures do not take into account industry-specific risks linked to biodiversity, such as reputational risk associated with expansion of palm oil into orang-utan habitat. WWF Indonesia, a founding member of RSPO, working with seven banks and the Indonesian NGO Sawit Watch, has initiated informal consultation between banks and NGOs to identify biodiversity conservation opportunities in the screening of recent loans. Stakeholders involved in this process have provided input to a new Bank Indonesia regulation requiring Indonesian banks to assess environmental measures taken by clients when rating the quality of their loans.
The environmental Principles and Criteria (P&C) recently adopted by the Roundtable on Sustainable Palm Oil (RSPO) are not used as screens for investment proposals. The integration of these criteria and their national interpretations into individual bank policies remains a challenge for banks.
BarrierWhile general guidance on environmental and social investment screens is available, most banks lack tools to apply them in practice. Effective, cost-effective, and yet robust risk screening and monitoring procedures that take into account the specificities of the palm oil sector are not readily available. Moreover, a large number of banks investing in the palm oil sector, in particular local banks in Malaysia and Indonesia, lack awareness, expertise and capacity (e.g., absence of environmental officers) to develop and implement appropriate in-house screening procedures.
Project DescriptionThis project, proposed by WWF International (Asia-Pacific Forest Program) in partnership with banks, NGOs and palm oil companies (HSBC, Profundo, Sawit Watch, RSPO members, etc.), aims at developing and testing practical, affordable and effective practices for banks to screen the social and environmental impacts of oil palm plantation projects in Indonesia and Malaysia.
The project is based on the assumption that the RSPO principles and criteria can serve as a “checklist” of social, environmental and economic attributes that lenders, investors, insurers and financial advisors can use to assess and manage risk.
The project proposes to produce a Handbook for credit officers on the screening and monitoring of projects in the oil palm sector, including (a) a model bank risk assessment policy for the oil palm sector, (b) briefing notes on sector risk, (c) a streamlined screening
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and risk management procedure, including model loan contract, covenants and client monitoring procedures, (d) country-specific definitions and guidance on the interpretation of RSPO criteria as well as (e) recommended standard approach to complaints.
Alternative ScenarioIf investment screens effectively and consistently incorporate biodiversity preservation opportunities, they become a powerful tool to channel investments towards “better” rather than irresponsible practices. Such investment screens can influence investment decisions, increase the credibility and impact of the RSPO P&C and influence palm oil companies’ land development decisions.
Estimated overall budget and sources co-fundingThe total cost of the project is roughly estimated to be US$80,000 out of which US$54,000 are expected to be co-financed by various other sponsors. The remaining US$ 26,000 would be expected from the BACP.
Replicability and sustainabilityThe financing of environmentally unsustainable projects can entail with operational, compliance or reputational risks that can have significant financial impacts: poor environmental planning can increase the client’s vulnerability to flooding, pests, fire and diseases; profitability might be threatened by fines, loss/suspension of permits, damages claims, and implementation of controversial projects might delayed or hindered by increased NGO criticism and campaigns.
As banks that have implemented and tested robust and effective screening procedures realize their risk mitigation value, and the screens will become standard industry practice.
In conversations with leading banks in the course of the PDF-B, it became clear that they see it to be in their own interest to work with the financial service industry in palm oil producing countries, to ensure that better environmental risk management becomes a widely accepted industry practice. Industry leaders are therefore expected to play a key role in disseminating results of this project, thereby encouraging the uptake of the screening procedures by local banks and other international banks.
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ANNEX 7: MONITORING AND EVALUATION (M&E) PLAN
The present M&E Plan has been elaborated by Ecoagriculture Partners in full interaction with IFC and the BACP development team. It will be further refined by the M/E Unit with the Program Management Unit, at the beginning of implementation.
1. Monitoring and Evaluation (M&E) Goals and Objectives for the BACP
A. Summary
The BACP seeks to achieve biodiversity conservation through increased market demand for palm oil, cocoa, sugarcane, and soy produced through biodiversity-friendly practices. The BACP is intended to support large-scale mainstreaming of biodiversity-friendly practices within production landscapes, rather than to achieve both production and biodiversity conservation objectives. Accordingly, this M&E Plan is designed to assess both biodiversity and market impacts and the linkages between these in various production landscapes.. More specifically, the M&E Plan will assess:The adoption and replication of better management practices (BMPs) by a range of market actors along the supply chain for the identified agricultural commodities and target countriesThe impact that these have on biodiversity conservation and social welfare in specific agricultural production landscapes containing globally-significant biodiversityThe extent to which the target commodity markets are being transformed, most notably through:
the promotion of BMPs by commodity sustainable roundtables/industry associations;
the modifications in total and planted land area, crop volumes and revenues generated by commodity producers and processors that adopt these BMPs;
the co-financing provided by project implementers;
the leverage of and additional private sector resources associated with the replication of identified BMPs by the commodity roundtables/industry groups;
the associated incorporation of biodiversity concerns into investment screening and decision-making processes of selected financial institutions.
In a related manner, the BACP also has an explicit objective of promoting the implementation of credible, cost-effective M&E methods that are practical for private sector actors, and their biodiversity conservation partners, to utilize on a widespread basis. Therefore, the extent to which the information developed by the BACP is used and disseminated by the private and public sectors will be another indication of the BACP’s impact, including as regards the M&E system itself.
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The guiding principles informing the M&E Plan are: 1) that it is straightforward for BACP project partners to implement, and 2) that it leads to improved results over time, through the process of adaptive management.79
There are inherent tradeoffs between the precision and cost of measuring and evaluating biodiversity conservation impacts on a large spatial scale. This M&E plan focuses primarily on a number of relatively inexpensive ‘proxy’ measures that will be complemented by some limited, more specific and intensive ‘outcome’ measures at both the project and landscape levels for a sample of supported projects, with the latter serving to demonstrate the validity of the proxy measures.
The central proxy indicator is compliance by BACP project partners with the sustainability principles and criteria developed by the participating commodity sustainable roundtables, or similar industry associations. Therefore, a critical dimension of the M&E Plan is its ability to assess the roles played by independent verifiers affiliated with the participating commodity roundtable/industry association to validate the claims made about the adoption and replication of BMPs by their members.
This M&E plan differentiates between three types or BACP-funded projects:Projects whose principal objective is exploratory or promotional, (e.g., that seek to determine how to encourage the adoption of new practices)Projects that seek to achieve impacts on biodiversity within agricultural production areas, and in the broader landscape, confirmed by relatively simple assessment methods;Projects that seek to achieve biodiversity impacts within both agricultural production areas and the broader landscapes that are rigorously evaluated for more in-depth understanding of the interfaces.
The first category of project will involve modest M&E activities that focus primarily on socio-economic and institutional/organizational issues, with an emphasis on ‘process’ rather than ‘impact’ indicators. The second category will entail more intensive M&E activities that include biodiversity conservation impact indicators. The third category will involve more rigorous M&E activities, including information about individual species, the use of control groups / sites, household-level surveys, etc.
In general, each BACP-funded project that involves significant on-the-ground activities (versus interventions designed to improve the sustainability criteria and principles of the commodity roundtables/industry associations or to influence policies and the broader enabling environment, etc.) will be required to clearly state the intended biodiversity conservation objectives and to provide indicators to demonstrate the achievement of these. Larger-scale projects will also need to include some outcome measures at the project and landscape levels, in addition to proxy measures, to demonstrate their impact on achieving their stated biodiversity conservation targets.
79 Adaptive management seeks to modify and fine tune project objectives, strategies, activities and the associated M&E measures in an iterative manner, based on changes in project conditions and circumstances and increased learning about implementation activities and their effectiveness and the assumptions that underpin the causal relationships between strategies and results.
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These larger-scale projects will also be required to state clear causal relationships between the adoption of BMPs and biodiversity conservation, and the underlying assumptions, as a prerequisite for receiving financial support. At a minimum, these outcomes will need to include changes in habitat area and quality, if species-level M&E is not practical or appropriate.
In a similar vein, each project supported by the BACP also be required to anticipate and spell out the social impacts that it may have, with particular focus on agricultural workers, neighboring communities and/or small-scale producers of the four commodities. The project will need to fully incorporate corrective measures if such impacts appeared potentially negative (or it will not be eligible). The focus of these impacts will be on livelihoods, primarily changes in income, local benefits from biodiversity resources, and/or access to social services, such as water and sanitation, education, health care, and savings and credit facilities.
Clear evidence that applicant proposals will promote either biodiversity conservation without negative social impacts; or both biodiversity conservation and social wellbeing; will be a major factor used in the project screening and application process. The M&E Unit will provide input to this process and be available to provide technical assistance to successful applicants to strengthen the design and implementation of their M&E activities.
The M&E Unit will work closely with selected project partners to adapt the M&E plans to reflect each project’s main purpose and context. Similarly, BACP management staff and the M&E Unit will work with the selected companies to develop data-sharing protocols that balance respect for the sensitivity of some proprietary business information and the need for public knowledge-sharing about the activities undertaken and the results achieved.
Although this M&E Plan is designed to be straightforward for the selected private sector proponents and their biodiversity conservation partners, it is also premised on the commitment of sufficient budget for M&E activities in order to ensure credible results. Therefore, the costs of project-level M&E activities will need to be fully included within the associated project budgets.
This M&E Plan covers the initial 5-year phase of the BACP and consists of baseline and mid-term evaluations complemented by on-going project-, landscape- and institutional-level monitoring activities.
During this phase, the primary focus will be within the palm oil commodity sector, in Southeast Asia. In all sectors, there will be a major focus on engaging and benefiting small-scale producers, both directly and indirectly, in addition to larger-scale producers.
B. The Primary Audiences
The primary audiences for the proposed M&E Plan are:
The companies selected to implement the various project initiatives, and their non-governmental organization (NGO) and/or research partners.
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The companies and financial institutions that purchase, transport, process, market, finance and are otherwise commercially involved in these commodities along the production to retail sale supply chain.
The secretariats, or other relevant organs in the commodity-specific sustainable roundtables (for Palm Oil, Soya and Sugar) and similar industry initiatives (for example the World Cocoa Foundation and/or the Sustainable Tree Crops Program (STCP) for Africa) and their members.
The IFC and other GEF Implementing and Executing Agencies, the GEF Secretariat (GEF Sec), and the GEF Sec Monitoring and Evaluation Unit.
Other conservation and rural economic development organizations and practitioners.
C. Roles of the M&E Unit
The M&E Plan will rely upon an independent M&E Unit to ensure that the activities are implemented in a rigorous and credible manner. The M&E Unit will play the following roles over the initial 5-year period:
Together with the BACP PMU, review project proposals of short-listed applicants to assess the likely impact of the project on biodiversity conservation, and the quality of the M&E components, making suggestions regarding how these might be strengthened.
If necessary, provide training and technical assistance to the project partners in the design and implementation of their M&E activities.
Monitor and assess on a periodic basis the quality of the M&E data collection and analysis by the project partners, and how this information is used to inform on-going project implementation, making recommendations for how this process can be improved, including a major focus on the implementation of sustainability criteria and principles of the commodity roundtables/industry associations.
In conjunction with the PMU, convene periodic meetings of project partners, commodity roundtable/industry association representatives, and external resource persons to share experiences, build M&E capacity and document lessons learned.
Develop terms of reference for the mid-term evaluation to be conducted by a qualified, independent third party.
D. Overall Program Management
The IFC will have contracts with, and supervise, the PMU and the M&E Unit separately, both to ensure independence and to allow additional funds to be raised for Management and for M&E activities, if necessary.
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The IFC will also participate as a voting member in the commodity roundtables and seek to play an active role in the relevant industry associations, thereby helping to ensure adequate attention by these organizations to the goals and concerns of the BACP.
2. Challenges of Monitoring and Evaluating Biodiversity, Social and Market Impacts
As the BACP Project Document states, “it is notoriously difficult to monitor a project’s direct impacts on biodiversity, and all the more so when the project spans three continents (Africa, Asia and Latin America), and production landscapes covering over 125 million hectares. In addition many factors contribute to landscape changes, thus making it difficult to identify the exact drivers for each change.” Ecoagriculture Partners would add that the challenges are even greater given that four commodities and multiple market actors are involved, all within a relatively short (in environmental terms) 10-year time frame (5 years for the initial phase).
A. Measurement of Biodiversity Impacts
Selection of Appropriate Measures and Indicators.
In its Phase 1, the BACP will support a limited number of projects for each commodity on a scale that can have a transformational impact on large agricultural production landscapes, stemming from widespread adoption of BMPs and the associated conservation of biodiversity within these areas. Therefore, the M&E plan will need to include both project-level ‘effectiveness’ measures and landscape-level ‘status’ measures. The former seek to determine ‘whether the projects are successful in achieving their stated biodiversity conservation goals and objectives, and, if so, how, and at what cost?’ The latter seek to determine ‘how the ecosystems and associated ecosystem functions and biodiversity within the selected landscapes are faring overall?’ Thus, project-level effectiveness measures can be aggregated and used to inform the landscape-level status measures, while the status measures can be used to provide broader context and perspective at the project level. There is also the related need to assess the validity of the posited causal relationships between the effectiveness and status measures.
Status indicators have the advantage of being more likely to reveal the indirect or unexpected effects of a project as well as the interactions among multiple projects and other outside factors. But they have the disadvantage of typically requiring significantly more data collection and analysis and being more expensive than project-level effectiveness measures. In addition, such status monitoring is typically not practiced by the private sector. As a result, the lead commercial project partners typically will need to identify appropriate partners from conservation NGOs and/or research institutions in order to successfully obtain such measures.
Also, there is a variety of effectiveness measures ranging from process measures to interventional, threat reduction and, finally, outcome measures. In a well-designed project and associated adaptive management plan, these measures are typically linked sequentially over time to a number of specific project objectives, strategies and actions, through causal results chains. In this manner, the process measures inform project personnel about progress being made in achieving the proposed interventions, which, in turn, provide information about the success, or
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otherwise, in reducing the major threats to biodiversity. Over time, these help inform the proponents about their success in achieving desired biodiversity conservation outcomes.
A well-articulated adaptive management plan clearly states the assumptions that underpin the posited causal relationships along these result chains and identifies suitable indicators and data collection and analysis methods for each type of measure. In general, process indicators are the easiest and least expensive to collect, followed by intervention and threat reduction indicators with outcome indicators being at the more difficult and expensive end of the precision/cost spectrum. Most projects also collect information about the costs associated with the various interventions to relate and compare these to the threat reduction and outcome indicators achieved. As with status measures, the private sector typically has not engaged in efforts to measure reduced threats to biodiversity, let alone efforts to determine the impact of their activities on desired biodiversity conservation outcomes. Therefore, it is likely that the BACP’s commercial project partners will need to rely upon the skills of biodiversity conservation and/or research institutions to obtain such information.
The attribution of cause and effect relationships between the project activities and biodiversity results is complicated by the natural fluctuations and cycles that occur due to climatic and other factors. As a result, the use of control sites having very similar conditions to the project sites may be the only way to isolate the project-related impacts from other confounding variables. However, the use of control sites obviously adds to the cost and complexity of M&E activities. See b. i) below for a brief discussion on the use of controls.
Two underlying assumptions are that: 1) most field-level projects being supported by the BACP will operate on a scale that will be sufficient to impact biodiversity at the landscape level, and 2) there will be sufficient M&E resources available within each project to conduct some landscape-level status and project-level outcome measurements, and the associated professional expertise required to successfully design and implement the M&E plans (with training and technical assistance provided by the BACP M&E Unit, if necessary).
In general, selected project sites will be situated in landscape mosaics that include patches of production areas and natural/conservation areas. Quality of habitat for valued biodiversity will depend upon the size, configuration and connectivity of natural/conservation areas and the compatibility of associated production systems (in terms of protecting the quality of affected water sources, existence of barriers to territorial movement of mobile species, presence of important food sources or nesting areas within production sites, etc.) (Harvey 2007, in press). Given the very significant heterogeneity of the projects and sites that are likely to be supported by the BACP, it will be important that these measures and indicators are site-specific. At the same time, there is a need for a number of consistent, cross-cutting biodiversity conservation measures and indicators to allow for comparison across these sites and the aggregation and analysis of the overall program results.
The extent to which project partners should be asked to assess the biodiversity conservation impacts of their activities, particularly beyond the locations of their agricultural production operations, will need to be determined on a case-by-case basis, depending upon each project’s
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goals, the threats to biodiversity, the resources and expertise available for implementing M&E activities, etc. That said, in general, it can be expected that the greatest impacts of changes in production practices will occur in habitat in surrounding lands located relatively close (i.e. up to a few kilometers away) from areas of agricultural production. Therefore, most project outcome and landscape-level M&E activities would be expected to occur within these adjacent areas.
In a related manner, the appropriate precision required when measuring such impacts will also need to be determined on an individual project basis, particularly with respect to the level of species-specific data collection, including attention to genetic biodiversity within species. While in most cases, a focus on habitat and keystone indicators will probably be sufficient, in other cases where highly threatened or endangered species, and distinct sub-populations, are present in or adjacent to project sites, more precise and rigorous species/sub-species-level will likely be required.
At its core, the intended biodiversity results of the BACP (over the entire 10 year period) depend upon demonstrating that the widespread adoption of BMPs is closely correlated to the desired project-level biodiversity threat reduction and biodiversity conservation outcome measures, in addition to landscape-level status measures. In turn, the expected transformational impacts of the BACP are predicated upon the ‘multiplier effect’ that project partners and the commodity roundtables/industry associations can achieve by promoting more widespread adoption of BMPs beyond the BACP project sites. And, the credibility of such claims will depend upon the independent validation that the replication of BMPs outside the project sites is comparable in terms of the results achieved.
Cost-effectiveness
As noted earlier, project outcome and landscape status measures tend to be significantly more complex and costly to implement than other project-level measures. The results typically are realized over a longer-term timeframe than process, intervention and threat-reduction measures. In order that the proposed M&E activities occur in a credible yet cost-effective manner, it will be generally advisable for the project partners to rely upon outcome and status measure data that can be collected remotely with the minimum precision and frequency required to make plausible ‘cause and effect’ inferences. Thus, for example, satellite imagery and aerial photography taken at the beginning, mid-term and end of the project might be sufficient to determine changes in land use management, forest/agricultural frontiers, fragmentation/connectivity of natural habitat, and, to a lesser extent, the ‘intactness’ of given habitats. The use of such measures could avoid, or significantly reduce, the need for primary data collection and analysis.
Similarly, any threat reduction, outcome and status measures that require primary data collection and analysis by project partners also need to be conducted with the same considerations regarding the required precision and frequency in order to credibly inform causal inferences between the project activities and the results obtained. Therefore, project partners might decide that using sampling techniques that result in high degrees of statistical significance may not be warranted in order to make reasonable inferences about the extent and causality of project
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results. They may rely instead on a number of representative case studies that provide illustrative information.
Even when considering project outcome measures, it is also possible to rely on the quantity and quality of habitat (focusing on areas, stability of frontiers, fragmentation, connectivity, intactness, etc.) as proxies for the overall health of the species and genetic resources that a given habitat supports. Or, going further along the precision/cost spectrum, it is possible to focus on ‘indicator’ or ‘keystone’ species that provide strong evidence regarding the overall health of a given ecosystem, rather than on studies on a number of individual species.
Alternatively, or in addition, project partners can also identify lower-cost approaches to gathering the required data than is typically the case for biodiversity conservation M&E in and around protected areas. For example, project partners might seek to work with local universities, research institutions and conservation and rural development NGOs to sponsor students and/or staff to collect additional data or to focus their research/data collection on the areas of interest to the projects. Although this is not so much the case for private companies, as they are more naturally prone to cost-efficiency, often, such research is conducted by internationally-recognized organizations, which typically have much higher costs. Collaboration between such international and local organizations is probably an even more cost-effective approach and is definitely worth exploring/encouraging under the BACP.
Similarly, project partners can utilize participatory methods for M&E activities that are suitable for the involvement of local community members (with adequate training and ongoing technical support and supervision provided by the project partners).
Each project supported by the BACP with significant on-the-ground activities be required, at a minimum, to collect cost-effective outcome measures on native habitat in the identified agricultural production landscapes, and relevant habitat qualities of agricultural production lands, if species-specific M&E is not practical, due to financial, technical, human resource and/or other limitations.
Capacity of Project Partners’ M&E Personnel
The M&E methods utilized need to be appropriate for and tailored to the technical capacity and experience of the project partners. While this can be expected to vary significantly across project sites, it will be important for prospective BACP project partners to demonstate the inclusion of experienced, M&E professionals in the supported projects who have significant on-the-ground implementation responsibilities, at least in an advisory, training and technical assistance capacity, if not on a day-to-day basis. Having such personnel involved in a full-time capacity would be strongly preferred in order to help generate good quality information and analysis and program-level learning.
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B. Measuring Change in Social Welfare in Biodiversity-Friendly Production Systems
The BACP wants to have no negative social impact. It is also noted that BACP will typically cover the incremental cost of mainstreaming biodiversity-friendly measures concerning biodiversity of global importance. Multi-stakeholder initiatives exist with or without BACP. BACP only claims to make their result better, especially for biodiversity, than it would have been without its support.
As with biodiversity conservation outcome measures, there are multiple and complex factors that influence the social welfare status of project beneficiaries, leading to the same challenges in establishing credible causal relationships. Similarly, measuring household-level (let alone inter-household and/or age/gender dynamics, etc.) changes in social welfare indicators, such as food consumption and nutrition, health status, changes in income, indebtedness, etc., is a notoriously complex, and typically expensive, undertaking. As a result, the same concerns arise about the use of proxies for such outcomes, with some limited more-intensive M&E activities to corroborate the validity of such measures. M&E activities should address potential positive and negative impacts of biodiversity-friendly commodity production on local welfare within project landscapes. These need to be identified (along with hypothesized causal links) during the project design phase and then evaluated. Key positive impacts could arise from several factors, such as the direct social requirements of new certification criteria – for example, payment of minimum wages, health improvements due to reduced agrochemical use or improved water quality for household use, or greater access of local communities to sustainably-harvested products from natural areas protected by the project, etc. Negative impacts could also arise due to a range of factors such as, community loss of lands for production or conservation needs, or lack of sufficient engagement of local stakeholders in land use decision making processes, etc.
For direct activities, companies can be expected to maintain records which can be verified either through the certification or verification process or through ground-truthing activities using representative samples of farm employees and their families. The associated indicators could include, for example, wages and benefits paid to employees/seasonal workers compared to prevailing practices in the project areas, access to social services, quality of housing conditions, exposure to work-related health risks, numbers/ages of children in school (disaggregated by gender and years of school attendance), changes in major household assets, etc. For indirect activities, selected baseline assessments will be needed on community-defined variables that can be assessed at mid-term and final evaluation. The large number of confounding variables affecting social welfare (local social and political dynamics, non-project-related economic changes, etc.) means that the primary focus of project M&E should be on variables and indicators that can be traced to project activities, and on the use of participatory tools to elicit community assessments of change.
A related issue is the involvement of local/neighboring communities in the design and implementation of the proposed project activities. Clear evidence of such participation by local community leaders and institutions should be a factor in the project selection process and on-
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going project M&E activities. In the case of small-scale producers the involvement of traditional/indigenous authorities will be particularly important regarding decision-making over land use planning, given that in many settings (such as in Ivory Coast and Ghana, for example) these authorities have jurisdiction over such matters.
It is important to note that some of the measures taken by project partners to improve biodiversity conservation may result in increased tension with local communities, or negative social impacts, while others could result in improved social impacts and community relations: these dynamics will be site specific. For example, the creation of protected forest reserves and/or areas for regeneration of native habitat within or adjacent to agricultural production sites could create tensions with local communities if access to land for housing and farming is problematic in the area. Conversely, if local communities are allowed controlled access to such areas to gather natural resources in a sustainable manner, particularly where access to land is not problematic, this could lead to increased benefits and improved relations.
Although the specific indicators will need to be determined on an individual project basis, the fundamental measures will be the achievement of positive changes in social welfare as a percentage of the stated targets against baseline conditions. Thus, for example, if a project partner identifies a target of increasing the average household income (however measured) of farm laborers by 15% during the life of the project, the extent to which this target is met, exceeded or not attained will be the primary measure.
As with biodiversity impacts, there is the potential to incorporate the use of control sites/groups to improve the ability to isolate the results due to project interventions versus other confounding variables.
C. Establishing Causal Linkages Between Project Interventions and Biodiversity and Market Outcomes
While there is little doubt that most agricultural certification and verification systems have been successful in ‘raising the bar’ in terms of improving the impact of production practices on the environment, prices paid to producers and employees, socio-economic conditions for workers and their families, etc., to date most, if not all, of these systems (either business-to-business or production-to-retail systems) do not go beyond farm-level activities. They also tend to focus on ‘process’ and ‘intervention’, rather than ‘threat reduction’ and ‘outcome’, measures and indicators (though some incorporate limited data on habitat protection and/or regeneration, water quantity/quality in water bodies, threat reduction - notably of hunting/fishing/trade in native species, and the incidence and prevalence of selected native species).
As noted previously, to be credible the claims made by the BACP and its project partners will need to seek to establish clear linkages between ‘improved’ on-farm practices and their impacts beyond the production areas to include the larger landscapes within which these agricultural operations are located. Therefore, this M&E plan advocates the limited use of a) project-level threat-reduction and outcome measures and, b) landscape-level status measures.
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Such measures will need to be cost effective in order to be adopted widely. One relatively low cost means of establishing such causal relationships would be the use of control sites within the same landscapes to distinguish project interventions from other factors and variables. Given that many of the project partners will be large-scale commodity producers and/or processors, often with multiple production sites in the same or similar ecosystems and landscapes, it should be possible to require them, and their M&E partners, to identify at least one site that is very similar in terms of biodiversity baseline status and threats to the project site(s). They could then collect remote data, notably satellite and/or aerial photographs, ideally linked to some limited on-the-ground, geographic information system (GIS) and qualitative habitat evaluation data on both the project and control sites to enable meaningful comparisons. Alternatively, the roundtables/industry associations could ask other members with similar operations in the same landscapes to collect this data on sites where they will not be adopting recommended BMPs, perhaps with financial support from the roundtables. As it is likely that the participating companies will stagger the adoption of BMPs in their various production units over time, there may be some ´natural controls´ where the only major variable will be the timing and relative effectiveness of when and how the BMPs are adopted.
Within this context it is relevant to note that generally there are increasing demands within the food industry regarding physical traceability of commodities along the supply chain, in addition to increasing use of computer based programs for farm management. Both of these trends are leading to increased use of GPS/GIS data at the production level. This type of data should make the use of control sites, linked to the use of remote sensing data, more practical over time.
In addition, and at the same time, some certification schemes have evolved over time to make it easier for companies to enter into the process of adopting improved practices by allowing and acknowledging incremental, ‘step-wise’ improvements, rather than requiring companies to meet all the requirements simultaneously (or at least a high percentage of these ‘across the board’) and by promoting multi-stakeholder agreement on actions—particularly those actions that are more sustainable and replicable. Some notable examples include Forest Stewardship Council (FSC) certification and the more recent Common Codes for the Coffee Community verification systems.
D. Measuring Change in Markets
The major market changes that are likely to occur as a result of the BACP include the following:
The total area of land and volume of commodities produced using the recommended BMPs, both by project partners directly and by other producers, primarily via the promotional efforts of the commodity roundtables/industry associations.
The total value of the commodities produced, processed and sold along the various links of the commodity supply chain; both in absolute terms and as a percentage of identified product market segments.
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Market incentives (such as improved payment terms, reduced cost of finance, price premiums,80etc.) offered to commodity producers; and corresponding incentives provided by wholesale and retail customers.
Finance provided to commodity producers/processors based on the adoption of the recommended BMPs/ finance denied to producers/processors on the basis of not adopting the BMPs.
Annual percentage changes in the growth rate of all the above.
Utilization of various product differentiation systems: e.g. physical segregation, ‘mass balance’ segregation, the use of tradable certificates, etc.
There are several variables that complicate the ability to accurately trace these changes in a given commodity market, including the following:
Generally weak traceability of commodities along the supply chain
Significant blending of commodities from multiple origins/sources along the supply chain
Typically inconsistent quality of ‘chain of custody’ management systems for verified/certified commodities
Certified/verified commodities are frequently sold into conventional markets, without any differentiation or associated market-level claims, which overstates the genuine demand for such products
Similarly, the success or failure of a given product in the market place may have more to do with the quality of the retail companies’ pricing, marketing and promotional strategies, and the related expenditure, or retail outlets’ product placement and promotional campaigns, etc., than with the inherent demand for the products, thus understating true demand.
The project’s ambitious performance goals in the market area depend upon highly effective activities for “scaling-up” producer, intermediary and buyer interest in market participation. At a minimum, monitoring efforts should provide a qualitative check on critical points in the causal chain between project intervention and multiplier effect. Some quantitative measures may also be possible related to adoption of market innovations. Therefore, a key criterion for BACP project selection will be the inclusion of a credible, explicit strategy by which project success would be leveraged—by project managers or other actors-- to achieve impact at scale (e.g., dissemination processes, relationship with key actors in the Roundtable, links with farmer organizations).
80 Although price premiums are usually associated with ‘niche’, versus mainstream, markets, it may be necessary for such premiums to be offered initially in order to encourage producers, especially small ones, to adopt new practices; such premiums would be expected to decline or disappear over time as ‘normal’ market dynamics are established.
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It is also worth noting that incentives provided by companies to managers can make a significant difference regarding the pace of adoption of BMPs. Chiquita Brand’s adoption of the Rainforest Alliance’s sustainable agriculture certification is a case in point. Having determined the benefits of this certification in terms of cost reductions and increased productivity on its banana plantations, the company experienced significant resistance to adoption of recommended practices by many farm managers, until it decided to make the achievement of the certification a component in the managers’ annual performance review and associated determination of bonus payments. Adoption of certification proceeded rapidly thereafter and soon spread to the vast majority of Chiquita Brand’s banana plantations.81
The existence of incentives by BACP project partners for their production managers to adopt BMPs and to support related M&E activities will be a key process indicator regarding the replication of project-level results.
Table 1 summarizes key challenges of monitoring and evaluating biodiversity and market Impacts, and recommended strategies for addressing them.
81 From personal discussions with David McLaughlin of Chiquita Brands, Costa Rica.
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Table 1: Matrix of Key Issues for Assessing Biodiversity Impacts and Strategies to Address Them
Key Issues Strategies1. Ensuring that short-listed project proposals have well designed and adequately resourced M&E Plans
- Involve the M&E Unit in the project review process- M&E Unit to provide training and technical assistance to those projects that require additional support
2. Ensuring that causal relationships can be made between the adoption of BMPs and desired biodiversity conservation outcomes
- Require all project partners to develop clear ‘results chains’ as part of their M&E plan, and to collect some project-level outcome measures, at a minimum regarding changes in native habitat- Where possible, require the use of at least one control site for each project
3. Ensuring social welfare impacts of BMPs are identified, any claimed positive impacts are indeed realized while negative effects are avoided or compensated for
- Require all project partners to develop clear ‘results chains’ to indicate how the adoption of BMPs will affect the social welfare of identified beneficiaries, and to collect some project-level outcome indicators- Ensure effective , participatory processes for community input and feedback are in place where relevant
4. Working with commodity roundtables / industry associations to develop rigorous sustainability criteria and standards, and associated independent verification protocols
- M&E Unit and BACP/IFC staff and consultants provide technical assistance to the roundtables/industry associations to develop and monitor the implementation of these criteria, standards and protocols- evaluate the verification criteria and processes used and share information and promote learning about the practices and results
5. Assessing the extent to which other actors in the commodity supply chain incorporate concerns about biodiversity conservation and sustainable agricultural practices into their commercial operations
- Tracking the performance of specific traders, processors, wholesale and retail merchants and financial institutions that have commercial relationships with the project partners- Encouraging commodity roundtables/industry associations to monitor and report on such issues
6. Strengthening the M&E capacity of the project partners and program-wide learning about cost-effective M&E methods
- Convening at least one workshop of project partners and external resource persons to share experiences, provide training and technical assistance and document lessons learned.
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3. Proposed Plan of Work
A. Approach
Strategies and Approach to M&E
Each BACP project partner will be expected to take responsibility for obtaining the requisite M&E information necessary to draw credible conclusions about the biodiversity, social and market impacts of their respective activities. As noted earlier, the scale and rigor of the M&E activities will be proportional to the scale and objectives of the individual projects. In most cases, this will require the private sector proponents to identify external M&E partners. The project partners will need to budget adequate resources for the proposed M&E activities, as part of the total financing required. In addition, the participating commodity roundtables or industry associations will also need to have developed sustainability criteria and standards that can be audited against (they will be supported by BACP to articulate these if they currently haven’t done so). They will also need to state how they propose to promote, monitor and evaluate the adoption of the related BMPs with their members and with this therefore ensure that they are achieving their claimed impact. A closely related issue is clearly defining the verification protocols to be used in this process and selecting independent verifiers (ideally institutions with an established verification track record rather than unaffiliated individuals).
Project Selection Process
The M&E Unit will play an active role in reviewing the M&E components of short-listed project applicants by providing comments regarding the design of the applicants’ M&E activities and making recommendations regarding how the M&E components would be strengthened. It is also likely that the M&E Unit will need to work intensively with selected project partners to finalize their M&E work plans to ensure that they will fulfill the BACP data collection and analysis requirements. The M&E Unit will work with the project components to develop their M&E plans within an adaptive management framework, in which clear causal relationships and the underlying assumptions are defined, and suitable indicators are identified to assess the impact of the various project objectives and the related strategies and activities.
Biodiversity Impacts – General
The portfolio of BACP field projects will likely include (at least) 3 biodiversity impact scenarios:
Project interventions that help to stop biodiversity loss associated with existing agricultural production practices (i.e., biodiversity at end of project is the same or not much less than at the beginning, despite continued production)
Project interventions that allow companies to increase agricultural production without degrading biodiversity (i.e., biodiversity at end of project is the same or not much less than at the beginning, despite increased production)
Project interventions that allow companies to conserve significantly more biodiversity with the same or increased levels of production (i.e., biodiversity at end of the project is greater than at the beginning).
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In some of these cases, the biodiversity benefits will be found within the production areas themselves (e.g., shade cocoa that preserves or increases local biodiversity), while in other cases, the biodiversity benefits will occur outside these areas (e.g., reductions in agrochemical runoff that improves aquatic biodiversity in downstream landscapes).
Under these various scenarios, the BACP project partners will need to specify the anticipated biodiversity benefits, and then demonstrate that these are actually occurring based on the information generated from their M&E systems.
On-farm Impacts:The main focus of the BACP-funded projects will be on the adoption of BMPs, and the associated verification inspections, to gauge the extent to which biodiversity-friendly management changes are occurring. As only stating the adoption of such practices is only a proxy for actual changes to the status of biodiversity, the participating roundtables/industry associations will also be encouraged to determine specific, cost-effective, farm-level biodiversity threat reduction and outcome measures, and appropriate indicators, as part of their sustainability criteria and standards.
For three of the identified commodities, notably palm oil, soy and sugar, the size of the farm units will tend to be large, so it should be cost-effective for project partners to rely primarily on satellite imagery and/or aerial photographs, taken on at least an annual basis, to show changes in local habitat (in terms of areas conserved, the stability of forest/farm frontiers, fragmentation and connectivity, areas converted to farming activities or degraded areas regenerated, and, to a lesser extent, the intactness of the habitat). Ideally the project partners will also conduct more intensive primary data collection on a small sample of representative farms to monitor changes in the threats to biodiversity; this could include some species-specific research. For cocoa, the majority of farmers will be small-scale producers, most probably organized into various forms of associations (and, in the case of Ghana, highly supported by the Government). For larger associations (of more than several hundred producers) it may still be possible to utilize remote data, but for smaller groupings it will probably be necessary to collect some primary threat reduction and outcome measures on a representative sample of member farms, with a focus on habitat versus species-level measures. The same would apply to small-scale producers of the other commodities.
Landscape-Scale Impacts:At the landscape level, the larger-scale project partners would be expected to support the collection of project outcome and status measures, with a primary focus on biodiversity changes in the physical location, extent and intensity of threats to biodiversity, and changes in native habitat area and quality (using the same indicators as at the farm level). In those cases where several project partners are operating in the same or contiguous landscapes they would be expected to collaborate in implementing and sharing the results of such M&E activities.
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Participating roundtable/industry associations would also be encouraged to support and replicate such activities, in selected projects including the use of a number of control sites to increase the ability to make causal linkages between project activities and biodiversity impacts.82
Social Welfare Impacts
The primary social welfare impacts are likely to focus on the following issues: Wages and benefits paid by project partners’ to full-time employees and seasonal workers Working conditions and the associated risks for employees and their families and local
communities The prices, terms of payment and other incentives received by small-scale producers
involved in project activities Access to and the quality of social services, such as water and sanitation, health care,
education, etc, for employees and local communities Access to natural resources by local communities within the production landscapes The extent to which employees and/or local communities are involved in the design and
implementation of project activities; the extent to which these groups are consulted and their input/feedback is responded to
The use of participatory M&E techniques; the perceptions (on average) of local stakeholders in the impacts of the project activities.
Market impacts
The total area of land and volume of commodities produced based on the adoption of the recommended BMPs (both by project partners directly and by other producers, primarily via the promotional efforts of the commodity roundtables/industry associations)
The total value of the commodities produced, processed and sold along the various links of the commodity supply chain; both in absolute terms and as a percentage of various product market segments
Price premiums and/or other incentives (such as improved payment terms, reduced cost of finance or inputs, etc.) offer to commodity producers; and corresponding price premiums paid by wholesale and retail customers
Finance provided to commodity producers/processors based on the adoption of the recommended BMPs/ finance denied to producers/processors on the basis of not adopting the BMPs
Annual percentage changes in the growth rate of all the above
82 The data collected in the M&E Plans will need to include all the relevant elements required by the GEF’s Biodiversity Tracking Tool.
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Institutional Impacts
Ability of the roundtables/industry associations to develop and promote sustainability criteria and standards
Membership (total numbers and annual increase) in the roundtables/industry association The total number and annual increase in number (and/or % of total members) of members
adopting recommended BMPs The percentage of members’ production areas verified as being fully in compliance with
sustainability criteria and standards The annual total and increase in the area of land in production using the recommended
BMPs The annual total and increase in volume and commercial value (FOB) of the commodities
with verified BMPs Membership support (financial and in-kind) for the roundtable/industry association
activities in general, and biodiversity M&E in particular The evidence of management incentives and/or other mechanisms being promoted by the
project partners and roundtable/industry association members to ensure adoption and replication of BMPs (to achieve the targeted ‘multiplier effects’).
National and local policies promoted by projects or their partners to support biodiversity-friendly commodity production are being debated by policymakers, adopted and implemented in target countries.
BACP Contribution in Terms of Development of Monitoring and Evaluation Systems and Approaches
Because land use, management and ecological functions are constantly changing within dynamic agricultural landscapes, long-term sustainability of both biodiversity and business benefits of biodiversity-friendly commodity systems requires ongoing monitoring and evaluation. Such M&E needs to be designed to explicitly serve local decision-makers, including investors, agribusiness and farming communities, certification bodies and public agencies. BACP will develop innovative approaches and methods of M&E for adaptive management. The proposed M&E Plan will also constitute in itself a replicable method to link verification/certification systems to actual impacts in the landscape. The M&E work will be designed to build capacity of project partners to design effective and efficient M&E systems.
B. Mid-Term Evaluation
As part of the mid-term evaluation, the M&E Unit will work with the PMU and IFC to define a number of factors to consider, referred to as ‘triggers’, to support the assessment of the merits or otherwise of continuing the BACP.. While the selection of these triggers will evolve during the course of project implementation, some leading candidates include the following:
The extent to which project partners are making progress towards stated targets for biodiversity conservation, social welfare and market results, with primary focus on process and intervention indicators regarding BMP adoption and replication.
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The extent and quality of M&E activities implemented and the use of information generated to inform production decisions by project partners (both within and beyond the project sites);
The extent to which commodity roundtable/industry associations effectively include the goals and objectives of the BACP within their sustainability criteria and standards; the extent to which they promote the adoption and replication of BMPs by their members, and the associated credibility of such claims.
The level of co-financing provided by project partners and participating commodity roundtables/industry associations and their members.
The extent to which other commercial actors along the commodity supply chains incorporate the BACP goals and objectives into their operations.
The extent to which project partners and participating commodity roundtables/ industry associations engage relevant government and donor decision makers and influence sector policies, regulations and their enforcement, and public investments
The perceived ability of the project partners and the participating commodity roundtables/industry associations to achieve the Program’s goals
Making this determination is a clearly a complex undertaking that will involve the consideration of many interconnected issues and factors, and a number of stakeholders. While this decision will involve the assessment of a number of ‘triggers’, such as the ones suggested above, the triggers would not be considered in isolation or in a mechanistic manner.
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Proposed Activities The proposed activities for the M&E Plan are summarized in Table 2.
Table 2. BACP Monitoring and Evaluation Work Plan
Activity Year 1 Year 2 Year 3 Year 4 Year 5
M&EPlanning
Refine overall M&E Plan with PMU
Develop reporting protocols for program and projects.
Review proposed M&E activities for short-listed project applicants; provide input to BACP re how these can be strengthened; revise indicators.
Review proposed M&E activities for short-listed project applicants; provide input to BACP re how these can be strengthened; revise indicators.
Review proposed M&E activities for short-listed project applicants; provide input to BACP re how these can be strengthened; revise indicators.
Review proposed M&E activities for short-listed project applicants; provide input to BACP re how these can be strengthened; revise indicators.
Data monitoring & synthesis
Prepare templates for site-specific project monitoring for each category of project;
Monitor, synthesize and review data from projects;
Interact with the verification working groups and their experts, as well as with independent verifiers identified by the roundtables/industry associations to provide input on the development of verification protocols to assess compliance with recommended sustainability criteria and standards and BMPs.
Monitor, synthesize and review data from projects and roundtables/ industry associations.
Determine how this information is being used at the project and roundtable / industry association level.
Recommend how to improve the analysis of this data for project management and reporting purposes.
Monitor, synthesize and review data from projects & roundtables/ industry associations.
Conduct a process audit of the various verifies with the roundtables/ industry associations to assess the quality of their work and recommend how to improve the process, results. Update M&E plans, as necessary.
Monitor, synthesize and review data from projects & roundtables/ industry associations
Update M&E plans, as necessary.
Monitor, synthesize and review data from projects & roundtables/ industry associations.
Support to staff and projects
Provide advice and TA to project staff on implementation of their M&E plans and related reporting.
Provide advice and TA to project staff.
Provide advice and TA to project staff.
Provide advice and TA to project staff;
Provide advice and TA to project staff;
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Visit field sites.
Provide training and TA and/or hold workshops on biodiversity and market impact M&E with Project Partners and roundtable/industry associations.
Visit field sites
Train BACP managers.
Training as needed.
Visit field sites.
Organize int’l workshop to review lessons learned from projects, M&E.
Training as needed
Visit field sites
Training as needed
Visit field sites
Evaluation Prepare TOR for Baseline on market transformation;
Complete GEF Biodiversity Tracking Tool
Implement Baseline Analysis
Prepare TOR for mid-term evaluation; Support External Evaluators; Complete Biodiversity Tracking Tool; base on GEF guidelines plus BACP-specific requirements
Develop guidance on the criteria to be used
Round Table Learning Networks
Participate in at least one relevant roundtable meeting per year
Train at least one networking or project group
Train at least one networking or project group
Train at least one networking or project group
Train at least one networking or project group
Reporting Prepare Annual M&E Report Prepare Annual Report
Prepare Annual Report
Prepare Annual Report
Prepare Annual Report
Review Mid-Term Report
Contribute to ”lessons learned”
4. Proposed Budget and Financing
The proposed budget for the Monitoring and Evaluation Unit activities is summarized in Table 3. This includes an estimated US$512,000 over five years for Ecoagriculture Partners M&E team, plus US$50,000 for an external mid-term evaluator. EP will also contribute at least an additional
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US$200,000 over 5 years as direct and indirect co-financing, through input of EP staff, international and local travel, workshop contributions, in-depth evaluation of measurement methods in at least two projects, development of improved methods for assessing biodiversity outcomes, and dissemination of lessons learned from BACP to diverse, international agricultural, conservation, business and policy communities. EP will also aim to mobilize additional co-financing and capacity through its network of collaborators to support proposed M&E activities.
Table 3. Budget for BACP Monitoring and Evaluation
Yr 1 Yr2 Yr3 Yr4 Yr5 * TotalEP StaffProject ManagerAssistantProject DirectorSub-Total
60,000 10,000 5,000$ 75,000
30,000 10,000 5,000 45,000
30,000 10,000 5,000 45,000
30,000 10,000 5,000 45,000
60,000 10,000 5,000 75,000
210,000 50,000 25,000 $285,000
Consultants & Consultant Travel
12,000 10,000 12,000 5,000 10,000 49,000
Staff Travel 5,000 5,000 5,000 5,000 5,000 25,000Workshops & Meetings 20,000 0 20,000 20,000 60,000Operational costs-- communications,supplies, direct admin
5,000 5,000 5,000 5,000 5,000 25,000
Indirect costs 18,000 10,000 13,000 10,000 17,000 68,000External Evaluation 50,000 50,000TOTAL BACP Contribution
$135,000 $75,000 $100,000 $70,000 $120,000 $500,000
Additional funding to be jointly sought by IFC & M&E Unit
- - - - $ 62,000 62,000
Co-financing * Staff input* Workshops, travel* Related field studies and data analysis* Dissemination
40,000 10,000
10,000
20,000
--
30,000
10,000
5,000
15,000
---
40,000
10,000
10,000
15,000
5,000
30,000
10,000
5,000
15,000
----
60,000
15,000
15,000
10,000
20,000
200,000
55,000
45,000
75,000
25,000
TOTAL $175,000 $105,000 $140,000 $100,000 $242,000 $762,000
5. Qualifications of Ecoagriculture Partners and Lead Resource Persons
Ecoagriculture Partners (EP) is proposed to serve the role of the BACP M&E Unit. EP is an international non-governmental organization whose mission is to promote the development of agricultural landscapes that jointly achieve sustainable agricultural production, conservation of biodiversity and ecosystems, and rural livelihoods. EP is uniquely positioned to provide support
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to the BACP in the area of monitoring and evaluation. Sixteen leading international organizations are collaborating with EP to develop methodologies for tracking landscape-scale impact and process indicators on the “three legs of the stool” (agricultural, biodiversity, livelihoods), plus institutions (including markets). EP’s Markets program is developing market assessment tools, as well as tracking and evaluating agricultural market innovations that benefit biodiversity. EP can mobilize access not only to its own staff working on agriculture and biodiversity conservation, but also to an international network of advisors and experts.
A. Proposed Role
EP can take responsibility for the full scope of proposed activities of the M&E Unit for the BACP, with the exception of the actual implementation of the mid-term review, which will be contracted to an independent external organization. The selection of the mid-term evaluator will be made by IFC following its procurement procedures. EP will lead the development of terms of reference for that review, and, if requested by BACP/IFC, provide input into the evaluator selection process. EP will be accountable, and report directly, to the IFC, but will also serve as a resource that projects participating in BACP can draw on for advice or expertise on their M&E. Work in related fields:
EP has just completed a global review of the ‘state of the art’ of landscape management for integrated agricultural and biodiversity outcomes, which will be published in mid-2008. More than 120 leading scientists, conservationists and practitioners from different disciplines and from around the world were involved in this assessment.
EP co-ordinates an international, multi-institutional ‘Landscape Measures’ working group. The group includes representation from a diverse group of conservation, agricultural and rural development stakeholders addressing the challenges of integrated M&E methodologies. The purpose of the working group is to develop a common framework and methodology for credible impact assessment of ecoagriculture initiatives (the three pillars of ecoagriculture – biodiversity conservation, rural livelihoods and sustainable agricultural production – at a landscape scale).
EP is involved in East Africa and Mesoamerica in ‘learning landscapes’ where integrated agriculture and biodiversity conservation initiatives are underway, and are supporting the landscape planning and monitoring efforts in those landscapes
EP has been involved for several years in activities on Payments for Ecosystem Services in Agricultural Landscapes that has involved partnership activities with the international Katoomba Group, FAO and many field projects. This work has focused in part on methodologies for assessing biodiversity and ecosystem impact of PES projects.
B. Key EP Resources and People
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Annex 2 provides brief bios of EP’s lead project staff: Sara J. Scherr, Louise Buck and Frank Hicks. Ecoagriculture Partners is in the process of recruiting the senior staff member who will serve as the Project Manager. Their qualifications to support the BACP project will be important selection criteria. It is expected that this person will be on board by the time the BACP begins operations. In the interim, the three lead staff will work as a team, with a lead consultant if needed, until the Project Manager is recruited.
EP also has the capacity to leverage significant M&E expertise from the individuals and institutions represented within its ‘Landscape Measures’ International Steering Committee . Details of these institutions are listed in Annex 3. Additional EP collaborators include the South Africa Biodiversity and Wine Initiative, the South Africa Landcare movement, and the Nature Conservation Research Centre (NCRC) in Ghana, focused on monitoring landscape level biodiversity impacts of traditional shade cocoa for Cadbury Schweppes.
Qualifications of Key Ecoagriculture Partners project staff Sara J. Scherr: Sara J. Scherr is an agricultural and natural resource economist specializing in land and forest management policy in tropical developing countries. She is President of Ecoagriculture Partners, an international partnership to promote increased productivity jointly with enhanced natural biodiversity and ecosystem services in agricultural landscapes. She served until 2006 as Director of Ecosystem Services for Forest Trends, an NGO that promotes forest conservation through improved markets for forest products and ecosystem services. She is a member of the United Nations Millennium Project Task Force on Hunger, and a member of the Board of Directors of the World Agroforestry Centre. Dr. Scherr's previous positions include: Adjunct Professor at the University of Maryland, College Park, USA; Co-Leader of the CGIAR Gender Program; Senior Research Fellow at the International Food Policy Research Institute in Washington, D.C.; and Principal Researcher at the World Agroforestry Centre, in Nairobi, Kenya. She was previously a Fulbright Scholar (1976), and a Rockefeller Social Science Fellow (1985-87). Dr. Scherr received her B.A. in Economics at Wellesley College in Massachusetts, and her M.Sc. and Ph.D. in International Economics and Development at Cornell University in New York.
Frank Hicks: Frank Hicks recently joined Forest Trends as Director of the Business Development Facility, which support private and community enterprises to develop portfolios including sustainable forest products and ecosystem services. He is also President of Sustainable Development International, a Costa Rican organization he founded that provides consulting services on sustainable agriculture, environmental conservation, enterprise development, strategic planning, development finance, monitoring and evaluation, and agricultural certification. SDI’s clients include: Sustainable Markets Intelligence Center (CIMS), Rainforest Alliance, TechnoServe, Foundations of Success (for the Global Environment Facility), Business for Social Responsibility, World Agroforestry Centre (ICRAF), Ecologic Finance, Consultancy in Environment and Management (CREM), Winrock International, Jungle Products, Inc., World Wildlife Fund, and Ecos Corporation. Mr. Hicks was formerly Director of the Rainforest Alliance's Sustainable Agriculture Program, and, before that, Vice President of Organic
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Commodity Products, an organic chocolate company, based in San José Costa Rica. He previously worked as the Program Manager for TechnoServe's Ghana office; the Regional Representative for the Biodiversity Conservation Network - a USAID-funded program that supported environmental enterprises in Asia and the Pacific, based in the Philippines; and as a program officer with the Ford Foundation based in Nigeria and New York City. He is currently a board member of the Nature Conservancy's EcoEnterprises Fund. Mr. Hicks has a Master's Degree from Harvard University with a focus on international development and a Bachelor's Degree from Stanford University in Human Biology. He has over 20 years of International Development experience, with more than 16 years based in developing countries. He serves as a Fellow of Ecoagriculture Partners.
Louise Buck: Louise Buck is a Senior Extension Associate in the Department of Natural Resources at Cornell University, and Coordinator of the Ecoagriculture Working Group in the Cornell International Institute for Food, Agriculture and Development (CIIFAD). Prior to coming to Cornell in 1989 Louise worked for a decade in Kenya with ICRAF and with CARE International on initiatives that linked research and outreach in agroforestry and rural development. A focus of her work was on methodology development for participatory monitoring and evaluation in agroforestry technology generation. As CARE's Regional Technical Advisor for Agriculture and Natural Resources in Eastern and Southern Africa, Louise assisted project partnerships in designing evaluation tools to generate knowledge and expand local capacity for management. She worked in a similar vein for a year in Indonesia.
As a Senior Associate Scientist with CIFOR from 1993-2003, based at Cornell, Louise engaged in developing methods to support adaptive collaborative management and social learning in protected area and community forest settings. From 1992 to the present she has coordinated CIIFAD working groups in agroforestry, protected area management, community based land use planning and management, and ecoagriculture. Her work in the Northeastern US focuses on facilitating learning communities of extension educators and forest owners to create forest farming systems of natural resource management that can generate public ecological benefits from entrepreneurial practice. Louise's MS degree in Natural Resources is from Colorado State University, with minors in Rural Sociology and Political Science. Her PhD in Natural Resources is from Cornell University, with minors in Rural Sociology and Adult Education.
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Organizations comprising the international steering committee for Ecoagriculture Partners’ landscape measures project (and Country headquarters)
Alternatives to Slash and Burn Project (ASB, Kenya)
Tropical Agricultural Research and Training Center (CATIE, Costa Rica)
Conservation International (CI, U.S.)
Cornell University (U.S.)
Commonwealth Scientific and Industrial Research Organization (CSIRO, Australia)
International Consortium on Desertification, Drought, Poverty, and Agriculture (DDPA), led by ICRISAT (India) and ICARDA (Syria)
International Livestock Research Institute (ILRI, Kenya)
International Water Management Institute (IWMI, Sri Lanka)
Model Forest Network (Costa Rica)
M.S. Swaminathan Research Foundation (MSSRF, India)
Rainforest Alliance (U.S.)
The Nature Conservancy (TNC, U.S.)
The World Bank (U.S.)
Winrock International (U.S.)
World Agroforestry Centre (ICRAF, Kenya)
World Conservation Union (IUCN, Switzerland)
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ANNEX 8: LOGICAL FRAMEWORK
GEF Operational Program : Primarily OP #2 (Coastal, Marine, And Freshwater Ecosystems) and OP #3 (Forest Ecosystems)Also OP #12 (Integrated Ecosystem Management), OP #14 (Persistent Organic Pollutants) and OP #15 (Sustainable Land Management).
GEF Strategic Priorities SP-2: Mainstreaming Biodiversity in Production Landscapes and Sectors (GEF 3) SP-4: Generation and dissemination of best practices for addressing current and emerging biodiversity issues.
Program Outcome BACP has measurably contributed to preserving global genetic, species and ecosystem diversity within agricultural production landscapes, by transforming markets for the target agricultural commodities while seeking to identify and avoid any negative social impact
Note: This is the logframe for the ten-year program
Outcome Indicators and Proposed Targets [1] Data Collection Methodology Critical Assumptions
Companies together representing 10% of global trade volumes of the target commodities, buy certified of verified products incorporating global biodiversity concerns[2]
Regional baseline assessments The barriers to implementation of BMPs can be overcome via targeted market interventions
Producers representing 25% of global trade in the target commodities are engaged in certification or verification systems
Mid-term evaluation and program final evaluation incorporating global biodiversity concerns
An area corresponding to 5% (minimum) of the production landscapes in the target commodities positively affected by initiatives of the Program[3]
Baseline assessment via remote sensing It is feasible to convert abandoned or degraded lands back to productive agriculture use
Representative farms or plantations confirm that they are implementing the practices, to which they committed, and that the practices are yielding benefits to biodiversity; specific biodiversity indicators will be determined on a case-by-case basis in consultation with biodiversity experts
Annual reports detailing the representative sample farms/plantations visited and M&E data gathered and analyzed
Adoption of Better Management Practices will slow down conversion of natural habitat
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Outcome Indicators and Proposed Targets [1] Data Collection Methodology Critical Assumptions
Producing companies that have committed to land set-asides have followed through on their commitments
Annual reports provided by the companies and by independent verifiers.
Adoption of BMPs will enhance habitat characteristics of commodity production to function effectively in landscape mosaics for biodiversity corridors
Adoption of better management practices is linked to biodiversity impacts beyond the strict commodity production areas
Baseline, mid-term and final evaluation by external evaluator.
A significant number of projects will involve spatial clusters of farms or plantations that will jointly affect ecological dynamics of landscapes
# of small-scale producers benefiting, from the BACP, either directly in the project countries
Review of Roundtable and other organization reported criteria, project progress reports
Portfolio of projects include cases with significant community engagement and impact
Site specific project-level indicators of social welfare.[4]
Field interview results (group interviews , key informant, household surveys)
[1] Although we can list possible indicators, it is too early at this stage to establish realistic targets with certainty. By the time the M&E plan is fully developed adequate targets for the indicators will be put in after being approved by the Steering Committee. [2] Sustainably produced: producer adheres to RSPO Principles and Criteria (for palm oil), or to a similar multi-stakeholder initiative which includes biodiversity enhancing criteria and target, or to and existing biodiversity friendly certification system (cocoa) [3] Subject to further verification by the M&E Unit of a realistic land area target that corresponds to the traded volume target and other ratios. [4] Including # households with access to basic social services, such as housing, water , health care, education… - change in major household assets - changes in community access and use of biodiversity resources in project landscape - involvement of local communities in project design and implementation (where relevant).
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Component 1: Support activities for an enabling environment
Component 1 outcome: Policy-related barriers to the adoption of biodiversity-friendly management practices in the targeted commodity sectors and countries are removed or in an obvious process of being removed.
Outcome Indicators Data Collection Methodology Critical Assumptions
Relevant policy documents Obtain same documents (public information)There are incentives to the government to take action after receiving proposals or recommendatins from BACP related actors.
Component 1 outputs:
Outputs Output Indicators Data Collection Methodology Critical Assumptions
Proposals of new policies or regulations elaborated by BACP activities where relevant, and conveyed to relevant authorities
Minutes and # of consultations and meetings with public authorities in charge of targeted policies or regulations
Monitoring by BACP country focal points or selected institution, project progress reports
National and sub-sovereign governments will be open to dialogue on biodiversity issues
Existence and # of new policies or regulations proposed by BACP activities
Project progress reportThe government takes action and decides to change the regulations as proposed
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Component 2: Support better production
Component 2 outcome: Alternative production methods that have a proven positive impact on biodiversity and significant potential for development and replication, both at the farm and landscape level are implemented
Outcome Indicators and Proposed Targets Data Collection Methodology Critical Assumptions
Companies representing 10% of global production commit to not expand further into high conservation value habitat
Land management plan, company documentation
If producers are shown that BMPs will increase productivity and profitability, and are offered TA on how to operationalize BMPs, they will adopt the BMPs.Price volatility and other risks will not reduce BMP’s financial viability
Companies representing x % of global land use allocated to production of the target commodities commit to adhering to principles and criteria and systems of verification/certification acceptable to BACP [5]
Land management plan, company documentation Idem
Companies representing at least 10% of global production adopt land management plans that protect globally important biodiversity on/near- or off-site
Land management plan, company documentation Idem
Adoption and replication of BMPs by project partners and roundtable/ industry association members beyond the BACP project sites
Project progress report Idem
# of hectares of production land where BMPs for biodiversity conservation are implemented.
Land management plan, company documentation, Project progress report Idem
Site and landscape indicators [6] Land management plan, company documentation, project progress report, surveys
BMPs promoted by the program will have a measurable beneficial impact on biodiversity.
[5] The target “x” will be defined by the M&E unit when more data will be available to link global production to global land area.[6] Including reduction in major agriculture- or farming-related threats to biodiversity in project sites and landscapes - change in area of natural habitat within production sites or landscapes - connectivity and/or fragmentation of natural habitat - prevalence and incidence of indicator/keystone species within production landscapes.
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Component 2 outputs:
Outputs Output Indicators Data Collection Methodology Critical Assumptions
Biodiversity-friendly practices are mainstreamed into production and on-farm processing
Studies, reports and workshops, and their number, on agricultural impacts on biodiversity, high conservation value habitats and BMPs. Reports from field tests of BMPS
Project progress reportproducers understand that BMPs will also increase productivity and profitability
Studies, reports and workshops, and their number, on principles and criteria and systems of verification/ certification acceptable to BACP
Project progress report Verification/certification systems are available and acceptable to BACP
Studies, reports and workshops, and their number, on land use and changes reported
Project progress report Producers understand the value added of land management planning
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Component 3: Support increased demand for products with more positive biodiversity impacts
Component 3 outcome: Buyers of the four targeted commodities, and other value-chain participants integrate biodiversity criteria in the value-chain
Outcome Indicators Data Collection Methodology Critical Assumptions
Agreement within the roundtables[7] on biodiversity impacts, indicators and performance levels for such indicators.
meeting minutes or other roundtable publications The Roundtables will define effective biodiversity performance levels and indicators
Landscape-level biodiversity indicators and targets for biodiversity, adopted by the roundtables, including the incorporation of zoning and land use management that protect biodiversity of global significance
Roundtable records, with informal sample survey for verification
The production of certified/verified commodities leads to a decreased impact on biodiversity
Adoption and evidence of use of a verification or certification system by the roundtables that incorporates BACP recommended biodiversity criteria, indicators and verifiers.
meeting minutes or other roundtable publications annual data on trade volumes from Roundtables and/or verifiers/certifiers
Traders, off-takers, processors, and other purchasers see benefits in purchasing biodiversity-friendly commodities
The growth in the volume and market value of commodities purchased with such verification & certification systems
Trade statistics (certification bodies, FAO)
The roundtables will attract the combination of market actors they need in order to be effective.Existence of credible verification & certification systems.Sufficient volumes of certified/verified commodities are produced
[7] or a similar multi-stakeholder initiative
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Component 3 outputs:
Outputs Output Indicators Data Collection Methodology Critical Assumptions
Biodiversity of global importance is mainstreamed into international roundtables or equivalent initiatives (process and result)
Studies and reports (and their number) on biodiversity impacts, indicators and performance levels for the indicators released to the roundtables
Project progress report
Minutes of meetings of the technical committee on biodiversity or similar body
Roundtable meeting report
The roundtables or similar initiatives, create a technical committee on biodiversity or similar body, or otherwise address biodiversity in a specific, discrete way
Verification or certification systems that incorporate the biodiversity performance targets defined by the roundtables, are established
Proposals for verification or certification systems that incorporate the biodiversity performance targets defined by the roundtables (and number of them)
Project progress report The roundtables define biodiversity performance targets
Minutes of workshops and meetings in which the proposals are presented and discussed (and their number)
Roundtable meeting reportRoundtable members see a clear interest in using a verification or certification system
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Component 4: Encourage the development of financial services to support biodiversity-friendly practices
Component 4 outcome: Adequate financial services supporting biodiversity practices are available to the actors in the targeted commodities and countries
Outcome Indicators and Proposed Targets Data Collection Methodology Critical Assumptions
At least 5 Financial Institutions - FIs - (including IFC) incorporate biodiversity concerns into their investment screens for the target commodities (including screens for syndicated loans), beyond the baseline
Progress reports from partner FIs
Documents describing the screens or rewarding practices
FIs recognize that biodiversity-friendly practices can increase their clients’ overall resource efficiency and productivity, and decrease social and market risks
% increase in the total annual value and % growth rate in loans made by these institutions to companies that have adopted the recommended BMPs, relative to total loans in the same sector
Sustainability reporting, annual reports to roundtables
FIs are willing to invest time into incorporating biodiversity concerns into their lending practices.
Public documentation on policy and performance standards of FIs FIs find a market for these new services
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Component 4 outputs:
Outputs Output Indicators Data Collection Methodology Critical Assumptions
Biodiversity friendly screening tools and reward systems that financial institutions can readily integrate into their operations
Documents describing the biodiversity friendly screening tools and reward systems produced, and their number
Project progress reports
Public information from FIs
# of FIs involved in the design process of the screening tools and reward systems
Project progress reports
Public information from FIs
FIs recognize that biodiversity-friendly practices can increase their clients’ overall resource efficiency and productivity, and decrease social and market risks
Minutes of workshops and meetings on dissemination of biodiversity friendly screening tools and reward systems, and number of them
Project progress reports
Public information from FIs.
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Component: Monitoring and Evaluation
Component outcome: The positive impact on biodiversity of the use of verification or certification systems is proven
Outcome Indicators Data Collection Methodology Critical Assumptions
Reports and results of case studies assessing the positive impact on biodiversity of certification/ verification systems and the number of them.
Program and project progress reportsPilot results allow us to prove the positive impact on biodiversity of certification/verification systems.
Existence of M & E systems and models to assess agricultural commodity production and biodiversity conservation adapted to diverse agricultural contexts and users
Program and project progress reports
# companies, roundtables, producer groups or other actors who adopt M&E results for long-term use
Interim and final reports produced on lessons learned about M&E
Companies and farmers find M&E components in their projects to be useful management tools
Component outputs:
Outputs Output Indicators Data Collection Methodology Critical Assumptions
Tested M & E systems and models that link agricultural commodity markets and biodiversity conservation
Reports produced on M&E methods for adaptive management in production and market development for biodiversity & commodity production
Project progress reportsMonitoring and evaluation activities are adequately funded and staffed within project
Project case studies produced and disseminated to key stakeholders and number of them
Project progress reportsDesign of monitoring and evaluation methods are adapted to project site conditions
M&E systems that companies and industry groups can use for adaptive management
Minutes of workshops and meetings with companies, roundtables, producer groups or other actors on M&E and adaptive management, and their number
Project progress reports Companies and farmers find M&E to be useful management tools
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ANNEX 9: INCREMENTAL COST ANALYSIS
IntroductionThe primary objective of the BACP is to preserve global genetic, species and ecosystem diversity within and nearby agricultural production landscapes, by transforming markets for target agricultural commodities. BACP will reduce the impact of agriculture on the production landscape by identifying and promoting cost-effective opportunities to reduce the impacts of agriculture on biodiversity and by moving sustainably-produced commodities from niche markets to the mainstream.
BACP is targeting four commodities: palm oil as “fast track,” as well as cocoa, sugarcane and soybeans. BACP’s initial activities will take place in Malaysia (oil palm), Indonesia (oil palm and cocoa), Ghana and Côte d'Ivoire (cocoa) and Brazil (sugarcane and soybeans). Other countries might be added as warranted in the course of the program’s 10-year lifetime.
BACP’s GEF budget is US$19 million, to be awarded in a first phase of US$7 million, and a second phase of US$12 million. GEF funds will be co-financed at a ratio of at least 1:2; co-finance will come from the private sector, NGOs, bi-lateral and multi-lateral donors, foundations and other parties. More significantly, it is expected that the TA funded by BACP will leverage millions of dollars’ worth of private sector investment that is guided by biodiversity-friendly principles.
Incrementality Of ProgramThe core of the Program – the rationale – is centered around incrementality. The rationale for the BACP can be summarized as follows:
a. Production areas for oil palm, cocoa, sugarcane and soybeans overlap with areas of globally significant biodiversity;
b. BMPs can reduce the impacts of production on biodiversity, but face certain barriers to adoption;
c. Commodity roundtables and the overall market structure provide an opportunity for the GEF to make an incremental investment to jump-start and support market transformation efforts that lead to the mainstreaming of biodiversity protection opportunities into commodity markets.
The BACP will promote changes in production methods that are both biodiversity-enhancing and financially sustainable in the long term. The IFC has selected commodities for which the private sector has already demonstrated leadership potential. The Roundtable on Sustainable Palm Oil (RSPO) has prepared and approved (by an overwhelming majority) a set of environmental and social principles and criteria. Similar roundtables are just getting underway for soybeans and sugarcane. Major off-takers in the cocoa industry understand the need for a supply of cocoa that is sustainably produced,
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and a cocoa roundtable is currently being discussed by major buyers. Yet for all four target commodities, the market is not yet delivering large-scale quantities of sustainable supply, because of the barriers mentioned above. Thus BACP represents an incremental investment that will allow the GEF to support consideration, at all levels, of the value chain to seek biodiversity-enhancing opportunities.
Incrementality Of Individual ProjectsBACP will work in four different commodities, in a variety of countries and production landscapes, promoting measurable performance standards which can be achieved through the adoption of different agricultural Better Management Practices (BMPs). The program will use tools such as documenting the business case for a BMP that reduces agricultural impacts on biodiversity of global significance; site-specific projects to field-test such BMPs, supporting Financial Institutions to incorporate biodiversity criteria into their investment screens, building the demand for biodiversity friendly product, or strengthening the biodiversity component of roundtable dialogues in target commodities. This multiplicity of approaches, although necessary to achieve the Program’s market transformation goal, complicates the incremental cost analysis.
In order to conduct the incremental cost analysis, it is helpful to present the BACP project selection criteria. BACP will prepare a market transformation Strategy which will define, for a given two-year period, what the program’s funding priorities will be for each commodity. An RFP will be issued to solicit projects; it will include clear and transparent project selection criteria. The criteria echo the GEF’s own project funding criteria; among other things, all proposals must demonstrate that the application of BACP funds to proposed project would bring about incremental benefits to biodiversity of global significance. Proposals should identify key threats to biodiversity and indicate how the project will mitigate those threats.
The project selection criteria related to incrementality are shown below:
IncrementalityThe proposal must demonstrate that without funding from BACP, the project would not have taken place, or that it would have taken place at a later date, at a smaller scale, or with fewer benefits to globally significant biodiversity.
The proposed activity must be transformational—it must be pivotal in bringing about significant change regarding the impact of producing or processing the target commodity on biodiversity, or in stimulating significant market uptake of commodities that are produced with measurably fewer impacts on biodiversity.
BACP funds will only be used to support performance levels that are beyond compliance with national or local laws and regulations, and that meet (or exceed) IFC’s Policy and Performance Standards on Social & Environmental Sustainability.
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Thus, while on the one hand, it is not possible to say, before implementation, which specific projects will be implemented with BACP funds, it is possible to affirm that all such projects will meet the GEF’s incrementality requirements.
In the course of project preparation, BACP has worked with potential partners to develop a number of sample projects. This analysis will discuss the incremental cost aspects of one such project, to illustrate the incrementality expected in funded projects. Sample projects are presented in further detail in Annex 6.
Sample Project
Project descriptionThe main objective of this project, “Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain,” proposed by Zamacom S.A. (Côte d’Ivoire), a subsidiary of the global trading company Ecom Agroindustrial Corp. Ltd, is to train cocoa smallholders in a comprehensive model of biodiversity-friendly cocoa farming that will improve the economic, environmental and social sustainability of thousands of cocoa farmers. (See Annex 6 for a more detailed project description).
Zamacom is currently providing Technical Assistance to farmers in order to make sure the cocoa delivered was produced according to better environmental practices. Using an Identity Preserved Scheme (IPS), the delivered cocoa is traceable to the farm, which will provide an added value that the final user, including large multi-national chocolate and confectionery firms, are willing to pay for.
The BACP grant would enable the Zamacom S.A. to extend its Technical Assistance to a much wider range of farmers, ensuring reduced biodiversity impacts on a wider scope in a quicker timeframe and increasing commensurately the availability of greater volumes of biodiversity-friendly cocoa into the mainstream market. The grant would support the review and, where applicable, the enhancement of the components of Zamacom’s Technical Assistance that address biodiversity of global significance.
Baseline scenarioZamacom’s own resources have allowed it to build capacity and deliver training to 2,500 farmers (owning 10,000 hectares and producing about 3,000 MT of cocoa per year) by working with 3 cooperatives over 4 years. The training included the following elements with relevance to biodiversity: - Protecting indigenous trees- Protecting water courses- Proper pruning and sanitary removal of infected pods to avoid further contamination
(IPM)- Proper application, including quantity and timing, of low-toxicity phytosanitary
products - Planting native species of companion/shade trees
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Baseline Costs.The project has cost US$ 200,000 per year over the last four years.
Baseline Benefits.The biodiversity impacts of the training are: - farm lifetime prolonged by 25-50%, and thus reduced need to expand production into
forested lands; - farm productivity increased by around 15%, further decreasing the need to expand
land under cultivation;- better downstream water quality through reduced pesticide use;- increased number of indigenous trees; and- increased shade cover, providing habitat for forest and soil-dwelling flora and fauna.
These benefits have only reached 2,500 farmers producing on 10,000 hectares so far, and can be expected to reach an additional 4,000 hectares per year in a business-as-usual scenario (e.g. no support from BACP).
Alternative scenarioThe alternative scenario will allow Zamacom to scale up their training operations, and to enhance the biodiversity component of the Technical Assistance provided to farmers. Whereas only 3,500 farmers a year would be trained in the baseline scenario, one of the alternatives would allow an additional 3,500 farmers to be trained over three years, resulting in an additional 16,000 hectares of land farmed according to biodiversity-friendly techniques. This scaling up could not take place without funds from BACP. Furthermore, the land under this program can be farmed for 25-50% longer, thus reducing the need to expand into forest habitat to maintain the same level of production.
The benefits to the farmers include an increase in productivity estimated at around 15%, and an 10-20% decrease in production costs. They can also expect to overall quality of their cocoa to increase. These benefits, which increase a farmer’s profitability and annual income, should lead to a permanent (and therefore sustainable) adoption of the techniques proposed.
Note that the final project proposal would include an M&E component that will allow the project to quantify the biodiversity benefits listed above (and others as applicable) so that lessons learned will be available to be shared with others. This will extend BACP’s impacts well beyond the specific investments made by the program, creating indirect impacts that will be greater than the project’s direct impacts.
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Costs and projections according to three potential scenarios
Baseline scenarioTotal annual Cost
BACP cost
Better Cocoa purchases (MT)
# of coops # Farmers Hectares
Current figures $200,000 $0 3,000 3 2,500 10,000Projected year 1 $200,000 $0 4,000 4 3,500 14,000Projected year 2 $200,000 $0 5,000 4 3,500 14,000Projected year 3 $200,000 $0 8,000 4 3,500 14,000Total $600,000
(3 years)$0 8,000
(annual)4 3,500 14,000
Alternative scenario A: BACP funds 33% and Zamacom 67%Total Cost BACP
costBetter Cocoa purchases (MT)
# of coops # Farmers Hectares
Current figures $200,000 $0 3,000 3 2,500 10,000Alternative, year 1 $300,000 $100,000 5,000 5 4,000 16,000Alternative, year 2 $300,000 $100,000 7,500 6 5,000 20,000Alternative, year 3 $300,000 $100,000 12,000 6 5,000 20,000Total $900,000
(3 years)$300,000(3 years)
12,000 (annual)
6 5,000 20,000
Alternative scenario B with Zamacom maintaining its current level of funding: BACP funds 33%, Zamacom 33% and third party co-financer 33%
Total Cost BACP cost
Better Cocoa purchases (MT)
# of coops # Farmers Hectares
Current figures $200,000 $0 3,000 3 2,500 10,000Alternative, year 1 $600,000 $200,000 6,000 6 5,000 22,000Alternative, year 2 $600,000 $200,000 10,000 8 7,000 30,000Alternative, year 3 $600,000 $200,000 17,000 8 7,000 30,000Total $1,800,000
(3 years)$600,000(3 years)
17,000 (annual)
8 7,000 30,000
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Baseline Alternative *
BACP Increment
Global Environment Benefit (scenario A), hectares under better management * 14,000 20,000 6,000
Global Environment Benefit (scenario B), hectares under better management * 14,000 30,000 16,000
Costs (scenario A) $600,000 $900,000 $300,000
Costs (scenario B) $600,000 $1,800,000 $600,000
*The alternative and global environmental benefit only take into account direct impacts of the project. The project will also have indirect impacts which will be at least as significant, see below for more detail.
Incremental Costs and Benefits. Incremental costs. Depending on scenarios shown above, the incremental cost covered by BACP over the three-years project lifetime would be US$300,000 (Scenario A) or US$600,000 (Scenario B).
Direct benefits. The direct incremental benefit would be an additional 6,000 – 16,000 hectares of land under better management.
Indirect benefits. The project would also bring about an indirect benefit: through dissemination efforts and market forces, the better practices applied during the program will be adopted more broadly. Consider that the final output figure (17,000 MT per year) represents about 1.5 percent of cocoa production in Côte d’Ivoire (about 0.6% of global production); while this may seem like a small figure, it is in fact a significant amount, that can cause a tipping point in cocoa production practices. Through its parent company ECOM, Zamacom has relationships with major buyers who are interested in purchasing better cocoa. BACP’s funds would allow Zamacom to go from its current pilot-level field-testing operations to the next level of scaled-up, improved production systems. Once that is in place, it becomes possible for buyers to purchase or forward contract higher volumes; the consequent trade levels would allow Zamacom to scale the program up further, without support from BACP. Securing significant volumes would allow producers to forward contract their production and use that to obtain cheaper working capital. This in turn would encourage even more of them to take part in the program.
In addition, the project would establish a viable commercial precedent for the private sector to invest in biodiversity farmer training as a part of their supply chain management. Through this model, other aspects of training that improve production, fermentation and overall product quality can also be incorporated into the model. If the model is successful, other industry players are likely to copy it.
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Finally, and most importantly, the practices adopted through the project will lead to a significant increase in farm lifetime (estimates range from 25-50%), and therefore, will decrease the pressure on expansion into natural habitat. Given that the practices increase a farmer’s revenues, they are likely to be adopted over the long term, making the project sustainable.
Though it is not possible at this time to quantify the project’s indirect benefits, it seems reasonable to expect the indirect benefits to be greater than the direct benefits.
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ANNEX 10: LIST OF LETTERS OF INTENT ON FILE WITH IFC
Various potential partners have sent signed letters of intent to IFC regarding cooperation on the BACP. Each of those concerns the intent to submit one or several specific project proposals, after BACP is approved by GEF and IFC, and thus to provide sub-sequent co-finance. They constitute BACP’s present pipeline of projects. A copy of these letters is available from the IFC. The parties are listed below.
Industry organizations
1. RSPO (Roundtable on Sustainable Palm Oil)
2. Better Sugarcane Initiative
3. RTRS (Round Table on Responsible Soy)
4. WCF (World Cocoa Foundation)
5. MPOA (Malaysian Palm Oil Association)
6. GAPKI (Indonesian Palm Oil Producers Association)
Private sector companies
7. ECOM Agroindustrial Corp. Ltd. (an international trader)
8. PT Smart Tbk (palm oil producer with 98,000 planted hectares in Sumatra and Kalimantan)
9. PT SOCFIN Indonesia (SOCFINDO - palm oil producer with large plantations in Indonesia).
NGOs
10. Conservation International
11. Rainforest Alliance
12. The Nature Conservancy (TNC)
13. WWF
Donors and other bilateral organizations
14. FMO (Netherlands Development Finance Company)Other
15. Harvard University/UNESCO: Great Ape Survival Project.
16. UNEP: Great Ape Survival Project
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ANNEX 11: ENVIRONMENTAL AND SOCIAL CLEARANCE MEMORANDUM
THE WORLD BANK/IFC/M.I.G.A.
OFFICE MEMORANDUM
DATE: December 19, 2006
TO: Catherine Cassagne, CESEF
FROM: Peter Neame, CESIG
EXTENSION: 31564
SUBJECT: BACP Biodiversity and Agricultural Commodities Program (GEF BIO&COM: 523359)Environmental and Social Clearance Memorandum
1. The Environment and Social Development Department Project Support Unit has reviewed the project document regarding the above project. The Biodiversity and Agricultural Commodities Program (BACP) is a proposed GEF program to provide support for various initiatives which will support the inclusion of biodiversity-enhancing measures into agricultural production practices. This will be achieved through various technical assistance programs as well as through financing of specific project level initiatives through intermediaries such as NGOs, industry associations, or foundations.
2. Because this program is wholly oriented to achieving positive environmental change through addressing biodiversity issues in agriculture, and will be implemented through technical assistance, this program is determined to be a Category C investment according to IFC’s environmental and social review procedures. As such, no detailed environmental and social review of program activities is required. The Program should ensure that, for any project-level interaction, the operations receiving BACP assistance meet IFC’s Exclusion List, and be conducted according to local and national environmental and social laws and regulations. CESIG further notes that the Program, as described in the Program Appraisal Document, through its management and its monitoring and evaluation components, will address, monitor and document social and environmental impacts of any project-level operations, in order to avoid negative social and environmental impacts. This project is cleared by CESIG for further GEF review and processing.
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3. The suggested language for the environment section of the relevant GEF documentation is as follows:
“This is a category C project according to IFC's environmental and social review procedure. Because this program is wholly oriented to achieving positive environmental change through addressing biodiversity issues in agriculture, and will be implemented through technical assistance, this program is determined to be a Category C investment according to IFC’s environmental and social review procedures. As such, no detailed environmental and social review of program activities is required. The Program should ensure that, for any project-level interaction, the operations receiving BACP assistance meet IFC’s Exclusion List, and be conducted according to local and national environmental and social laws and regulations. CESIG further notes that the Program, as described in the Program Appraisal Document, through its management and its monitoring and evaluation components, will address, monitor and document social and environmental impacts of any project-level operations, in order to avoid negative social and environmental impacts. This project is cleared by CESIG for further GEF review and processing.”
4. If I can be of additional assistance, please let me know. If any significant changes are made to project structure and activities, during the GEF application and approval process, please return to us for further advice.
Distribution: Patel, Bulmer, Chemerinski, Guillon, IFC Information Center, CESIG Project File
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Note that this review was based on an earlier version of the Program Document. Changes made since the review are outlined in Annex 3 above, Summary of Findings of Program Development.
ANNEX 12: STAP REVIEW
STAP ReviewBiodiversity and Agricultural Commodities Program (BACP)
STAP Reviewer: Julian CaldecottFinal report, 18 February 2006
1. OVERVIEW
The central environmental issues to be addressed by the BACP globally, but with a focus on Brazil, Côte d’Ivoire, Ghana and Indonesia, concern the production of agricultural commodities in areas of high biodiversity value, with primary reference to palm oil and cocoa, and secondarily to soya and cane sugar. These issues particularly include land conversion, soil erosion and exhaustion, over-use of agrochemicals, and over-use of water. The basic assumptions of the BACP are: (a) that it is possible to reduce the impacts of agriculture on biodiversity by using ‘Better Management Practices’ (BMPs); (b) that it is possible to work with stakeholders to remove barriers to the adoption of BMPs throughout these sectors of agribusiness; and (c) that market transformation techniques can be used to make commodities grown under BMP conditions become the norm rather than the exception in global trade. Environmental BMPs in particular can include land use planning and zoning (to set aside key ecosystems and biodiversity resources), planting on degraded lands (rather than in natural ecosystems), maintaining soil fertility (e.g. by composting and mulching), and reducing the use of agrochemicals (e.g. by integrated pest management).
The BACP is intended to encourage and enable the routine use of environmental BMPs in the production of palm oil and cocoa in the target countries, thereby contributing to the conservation of globally-significant biodiversity. To accomplish this, the project aims to collaborate with organised forums of business and other stakeholders that already exist for palm oil, cane sugar and soya, and that is incipient for cocoa. In each case, BACP will offer technical assistance to define how real-world commodity producers could introduce particular BMPs on their plantations, to make it easier for financiers to understand the merits of investment in BMPs, and to encourage the global market to accept a price premium on, or show other signs of approval for, commodities produced to BMP standards. This is expected to result in an increasing share of production being more biodiversity friendly than before.
The BACP is fully consistent with GEF Strategic Priorities, and compliant with GEF Operational Programmes 13 (Conservation and Sustainable Use of Biological Diversity Important to Agriculture), OP 12 (Integrated Ecosystem Management), OP 14 (Persistent Organic Pollutants)
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and OP 15 (Sustainable Land Management). It is judged to be scientifically and technically sound, likely to yield highly-significant global environmental benefits, and scores highly on replicability and sustainability criteria. It is also likely to contribute to other GEF Focal Areas (on Climate Change, International Waters, Land Degradation, and Persistent Organic Pollutants), and strongly complements other international commodity initiatives. There has been strong involvement of stakeholders, and the capacity of key participants is likely to be strengthened through implementation of the project. Finally, the BACP is assessed as highly innovative. It is recommended that this important project, with its great potential for generating global environmental benefits, should proceed swiftly to the next phase of its development.
2. OBSERVATIONS IN RELATION TO KEY GEF ISSUES
2.1 SCIENTIFIC AND TECHNICAL SOUNDNESSThe central environmental issues to be addressed by this project globally, but with a focus on four countries (Brazil, Côte d’Ivoire, Ghana and Indonesia83), concern the production of agricultural commodities in areas of high biodiversity value. Of primary consideration is palm oil (from the African palm Elaeis guineensis) and cocoa (from the American shrub Theobroma cacao); while of secondary concern is soya (from the Chinese legume group Glycine spp.) and cane sugar (from the South-east Asian grass group Saccharum spp.). These issues particularly include the following:
Land conversion. The process by which natural ecosystems are replaced by artificial ones dominated by one or other of these crops has probably destroyed more globally significant biodiversity than any other, since these tropical and sub-tropical plants have so widely replaced ecosystems that were previously very rich in species and, especially in the case of islands, endemic species. It has also undermined the lives, livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation.
Soil erosion and exhaustion. Where planting and production practices take insufficient account of soil ecology and fragility under conditions of high rainfall and steep terrain, there can be a wholesale loss of nutrients, structure, diverse communities of soil organisms, and material that is washed away to damage downstream ecosystems (such as coral reefs) and economic infrastructure (such as dams).
Use of agrochemicals. Insecticides, herbicides and fungicides contaminate soils and ground waters, where their broad-spectrum toxicity can destroy whole communities of organisms. Meanwhile, along with mill and processing effluents, nitrogen-based fertilizers are a chief source of excess nitrogen in terrestrial and aquatic ecosystems, which causes eutrophication, hypoxia/anoxia and ecosystem death. This can threaten fisheries and biodiversity, as well as altering food webs and simplifying ecological energy flows. Nitrogen deposition was adopted as a key global indicator of biodiversity loss by the CBD in 2004.
Use of water. At a global level, the agricultural sector is responsible for about 70% of all freshwater withdrawal, more than twice the amount of industrial, municipal, and all other
83 Malaysia is also to be considered, but it is not yet clear in what detail, or whether this will be done at a federal or state level (bearing in mind it is the states that regulate land use, and those in Malaysian Borneo – Sabah and Sarawak – are particularly autonomous, and Sabah especially has converted large amounts of lowland rain forest to oil palm).
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users combined, and this consumption can threaten downstream ecosystems or those that share aquifers with crops; where evaporation rates are high relative to rainfall, irrigation can also cause salt contamination of surface soils.
The basic assumptions of the BACP are: (a) that it is possible, for the selected crops, to reduce the impacts of agriculture on biodiversity in some or all of these dimensions using ‘Better Management Practices’ (BMPs); (b) that it is possible to work with stakeholders to remove barriers to the adoption of BMPs throughout these sectors of agribusiness; and (c) that market transformation techniques can be used to make commodities grown under BMP conditions become the norm rather than the exception in global trade.
The BMPs concerned encompass a broad range of environmental, social, and labour practices that could allow companies to improve efficiency of resource use, create marketable by-products, reduce waste, encourage employee loyalty, secure market access, and reduce risk of adverse relations with local stakeholders. Environmental BMPs in particular can include:
Land use planning and zoning. Areas of exceptional biodiversity value can be identified and set aside for preservation, but this needs to happen at a landscape level with due attention to the need to maintain connected networks of viable ecosystems. Some of the areas required to maintain biodiversity and wildlife corridors are also areas that are marginally productive and barely worth converting, including riparian strips and areas of steep slope.
Planting on degraded lands. Areas that have already been degraded by repeated logging and fire, for example, are abundant in tropical countries and are clearly more expendable from a conservation point of view than other, less disturbed, ecosystems. They can be cheaper to acquire, and easier and cheaper to plant, than natural areas, and doing so would relieve some of the pressure on natural habitats.
Maintaining soil fertility. Many practices reduce soil erosion and the need for chemical inputs, including the careful siting of plantings and infrastructure, the elimination of burning, setting-aside riparian strips, floodplains and areas of excessive slope, terracing, establishing cover crops (particularly nitrogen-fixing legumes), and building or maintaining organic matter in the soil through mulching, etc.
Reducing the use of agrochemicals. Integrated Pest Management (IPM), precision application methods, spot applications as needed and the elimination of prophylactic use of agrochemicals are all ways to reduce their use. Composting crop residues and mill effluents for use as fertilizers can reduce amounts dumped elsewhere, while also reducing the need for artificial fertiliser inputs.
The BACP is intended to encourage and enable the routine use of environmental BMPs in the production of palm oil and cocoa in the target countries, thereby contributing to the conservation of globally-significant biodiversity. To accomplish this, the project aims to collaborate with organised forums of business and other stakeholders that already exist for palm oil, cane sugar and soya, and that is incipient for cocoa. In each case, BACP will offer technical assistance to define how real-world commodity producers could introduce particular BMPs on their plantations, to make it easier for financiers to understand the merits of investment in BMPs, and to encourage the global market to accept a price premium on, or send other signs of approval for, commodities produced to BMP standards. This is expected to result in an increasing share of production being more biodiversity friendly than before.
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The targeted forums that already exist are the Roundtable for Sustainable Palm Oil, the Better Sugarcane Initiative, and the Roundtable for Responsible Soy Production. The main players in the cocoa industry have already endorsed the creation of a Better Cocoa Roundtable, but there are other potential partners including the World Cocoa Foundation and the Sustainable Agriculture Initiative. The project document describes a “symbiotic” relationship between BACP and the various forums, in which the project helps to fund activities that address biodiversity of global importance, and makes sure that the roundtables adequately address biodiversity concerns, while participation allows BACP to track key issues in commodity markets, build contacts with the main players, and solicit potential projects. Funding from BACP would be used to support the roundtables in the following ways:
by providing a share of core support to the forum secretariat;
by helping to identify measurable indicators for biodiversity and habitat both at the landscape and farm level (this being done through each forum’s Technical Working Group or TWG);
by helping to identify information gaps or the need to organise existing knowledge (also through the TWGs);
by support research on indicators or standards;
by helping to identify and vet global performance standards for each indicator;
by supporting the field testing of the proposed standards; and
by support efforts to understand the limitations or strengths of global standards.
Complementing these activities, the BACP will address ‘demand-side’ support for BMPs, since the market must be willing to absorb increased production of such commodities. One way to do this, it is proposed, is to develop quality assurance, verification or certification systems, which allow buyers to select products that meet particular standards, in this case that they are BMP-produced and therefore more ‘biodiversity-friendly’ than alternatives. The key assumption is that a significant proportion of potential buyers would exhibit such a preference. This seems likely, and the stakeholder forums have already made a start on relevant production standards to allow the design of certification schemes. Finally, the BACP will likewise address issues concerning the financing of BMPs, in the awareness that there is already interest among leading financiers in the agricultural sector to incorporate biodiversity considerations into investment screens.
The BACP’s approach is largely to do with overcoming the following barriers to the adoption of BMPs:
that BMPs are not yet clearly defined or field-tested, so it is hard to assess their economic and biodiversity costs and benefits, or to adapt them to different production regions;
that there is a lack of organised and accessible knowledge about possible BMPs among producers, including their methods, costs, and benefits;
that few financial analyses exist for potential BMPs;
that large number of smallholders are relatively inaccessible, including those accounting for a third of palm oil production in Indonesia and nearly all production of cocoa in Ghana, Côte d'Ivoire and Indonesia, and BMPs suitable for smallholder use have not yet been documented;
that in the absence of information and analysis about BMPs on the supply side, and informed pressure for them on the demand side, many potential investors and financiers are reluctant to commit themselves to BMPs;
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that there is a lack of tailored financial instruments to reduce the up-front costs or defer the repayment of loans, which are needed to encourage producers to rehabilitate degraded lands (rather than financing their projects by clearing and selling forests);
that there is limited access to financing for innovative or uncollateralized investments within local banking systems;
that laws which might encourage biodiversity-friendly BMPs may be weak, unclear, contradictory or not enforced; and
that rising production and commodity prices create a ‘boom’ mentality that discourages innovation and change.
It is intended that these barriers will systematically be overcome by the BACP through applied research, by organising and disseminating knowledge, leveraging financing, and deploying a range of market transformation techniques. The project document summarises the proponent’s considerable track-record in these areas, and especially in investment leverage and market transformation.The aims of the BACP are explained in the following terms. First, the three major groups of market actors for each commodity will be targeted, these being the producers, traders and purchasers, and financial institutions. For each group, the BACP will create an enabling environment that generates incentives for greater supply, demand, and financing for biodiversity-friendly products. This approach is reflected in the following specific objectives:
first, international multi-stakeholder commodity dialogues and supportive government policies support the integration of biodiversity concerns at all levels of the value chain;
second, biodiversity-friendly practices are incorporated into production and on-farm processing, leading to a measurable decrease of the farm’s impact on biodiversity of global significance;
third, significant mainstream demand is created for commodities produced according to biodiversity-friendly means; and
fourth, financial institutions recognize the economic benefits of biodiversity-friendly production methods and practices, and integrate them into their operations.
To achieve these aims, the BACP will undertake activities grouped in six components. In addition to components for monitoring and evaluation, and programme management, which are addressed in detailed annexes in the project document, the four others are:
Component 1: Supporting activities for an enabling environment.
Activities will include, for each commodity and location:
ascertaining biodiversity-friendly practices; prioritizing practices on the basis of impact on biodiversity and potential for market adoption. documenting each priority practice in terms of technique, biodiversity benefits, financial and
economic costs and benefits, and other benefits (such as increased farm lifetime, supply security, social benefits);
disseminating the results of each study; participating in roundtable meetings (with a BACP representative on each steering committee); contributing, financially or in-kind, to the roundtable’s TWGs on biodiversity issues; encouraging policy dialogue at all levels of government.
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Component 2: Supporting better production via site-specific projects.
The types of activities that the BACP will support include:
creating commodity-specific learning and referencing tools to give producers information about BMPs that reduce biodiversity impacts;
implementing proven BMPs when there are market failures that prevent the private sector from adopting them, and the methods have good replication potential;
conducting applied research to demonstrate the value of BMPs to biodiversity and businesses; supporting land-use management planning for protection of ecosystems and biodiversity; supporting production methods that contribute to the restoration of degraded habitats and/or the
restoration of wetlands or biological corridors in agricultural landscapes; encouraging non-production related biodiversity conservation initiatives engaged in by parties
involved in the production of agricultural commodities (e.g. biodiversity set-asides, zoning); and working through larger market chain actors (mills, plantations, traders, etc.) to support the adoption of
BMPs by smallholders.
Component 3: Supporting increased demand for products with more positive biodiversity impacts.
Activities on the demand side will include:
supporting quality assurance, verification or certification schemes that address biodiversity concerns (e.g. the formulation, field-testing, and approval of biodiversity-related principles, criteria, standards, and verifiers);
supporting the setting up of systems and practices to allow measurability and traceability; documenting and increasing awareness among purchasers of the benefits to them of purchasing
biodiversity-friendly commodities, and of their availability; and supporting applied research that addresses possible barriers to the uptake of such products, and how
to overcome them.
Component 4: Encouraging financial services to support biodiversity-friendly practices.
Activities will include, for each commodity and location:
working with traders or other private sector actors who would like to use supply-chain finance (that is, to use future purchase commitments as collateral against short-term loans for agricultural inputs);
working with financial institutions towards incorporation of biodiversity concerns into their screening methods; and
working with financial institutions on the development of financial instruments that address market needs related to biodiversity practices (e.g. ones that are responsive to the cost differential between developing a new plantation on degraded or forest land), and on ways to market those instruments to their customers.
The BACP, then, is designed to work closely with existing, well-organised groups of stakeholders, and to help them meet a number of their needs in exchange for, and/or in ways that create an incentive for, greater biodiversity-friendliness in their business activities. This is an ambitious but well thought-out and well-targeted project that seems to be scientifically and technically sound.
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2.2 GLOBAL ENVIRONMENTAL BENEFITS
As explained in the project document, expanding production of palm oil, cocoa, soya and cane sugar in countries that possess globally-significant biodiversity is likely to have continuing, strongly negative consequences for that biodiversity. The project document reviews the position in the BACP’s four target countries, and explains the global biodiversity significance of Indonesia, Ghana, Côte d'Ivoire and Brazil. Indonesia is a megadiversity country in which logging, forest fires and agricultural conversion, especially for oil palm, are precipitating a severe biodiversity crisis, with escalating rates of endangerment and extinction among the extremely rich biota of the country’s 17,000 or so islands. Ghana and Côte d’Ivoire lie in a highly distinctive biogeographical unit but one that is among the most critically fragmented biodiversity habitats on earth, where deforestation from logging and slash-and-burn agriculture is still prevalent, and where cocoa production landscapes continue to advance into the remaining forest habitat. Brazil is another megadiversity country, and includes the rain-forested Amazon Basin, the Cerrado woodland savannah which covers 21% of the country, and the highly-fragmented endemic-rich Atlantic Forest, all of which are under severe pressure from agricultural expansion, including for cane sugar and soya production.
It is hard to over-state the global importance of the biodiversity resources that are under threat in these four countries, nor the importance of finding practical ways to relieve these pressures. The systematic introduction of biodiversity-friendly BMPs into the agribusiness sector in these particular locations is likely to generate major global environmental benefits. These will be amplified greatly if, as expected, the BACP induces a mainstreaming of similar incentive structures in other crop sectors and other countries through its influence on global patterns and preferences, both in the market and among the institutions that finance the world’s agriculture.
The BACP document itself envisions that global environmental benefits will come from:
commodity-wide global improvements, on the grounds that over 125 million hectares worldwide are dedicated to producing the four target commodities, so even a small improvement in production practices, multiplied over the area concerned, will have a global impact on biodiversity;
local improvements in the circumstances of globally-important biodiversity, on the grounds that changes may relieve specific threats to endangered species in a particular ecosystem (e.g. the establishment of wildlife corridors in oil palm landscapes for the benefit of orangutans); and
improvements in global knowledge, since the BACP will contribute significantly to understanding of complex agricultural ecosystems and their interaction with the global economy.
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2.3 GEF CONTEXT
The BACP is fully aligned with GEF Strategic Priorities as approved by the GEF Council in 2003, and addresses two of them in particular:
Mainstreaming Biodiversity in Production Landscapes and Sectors, since the BACP will facilitate the mainstreaming of biodiversity within production systems, support demonstration projects with high replication value, and develop market incentives for conservation.
Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues, since the BACP will create and disseminate biodiversity best practices in the agricultural commodities sector, and will build on lessons learned to improve the sustainability of its impact.
The BACP is also consistent with CBD decisions on the conservation and sustainable use of agricultural biological diversity, and the directly-related GEF Operational Programme 13 (OP 13), as well as with others such as OP 12 (Integrated Ecosystem Management), OP 14 (Persistent Organic Pollutants) and OP 15 (Sustainable Land Management). The BACP also responds to the recommendation by GEF’s second Overall Performance Study (OPS 2) to engage more directly with the private sector in the area of biodiversity. The BACP’s approach is also consistent with the interim GEF report on Mainstreaming Biodiversity in Production Landscapes and Sectors, which points to “improving production practices” as one of the four priority areas for GEF intervention. In addition, the BACP is aligned with the GEF strategy to enhance engagement with the private sector, particularly in agriculture in ways relevant to globally-important biomes and the strategic use of non-grant financial instruments. Finally, the project screening process to be used by the BACP will help ensure the GEF-eligibility of individual projects.
2.4 REPLICABILITY
Replicability is an explicit goal in the design of the BACP project-level initiatives, and is one of the criteria on which proposed projects will be assessed. The emphasis on financial sustainability of site-specific projects, will further enhance potential replicability since projects are intended to be proven, and then copied. The market transformations envisioned to increase demand for biodiversity-friendly commodities will have an across-the-board influence on the preferences of consumers, who will apply those preferences to everything that they buy, and not just the examples trialled by the BACP. Similarly, financial institutions enlightened by concern for biodiversity will be more likely to recognise, accept and lend to a wide range of new initiatives that are perceived as ‘biodiversity friendly’ as well as sound in business sense. The dissemination of organised knowledge explaining and justifying BMPs is a process specifically designed to encourage replication on a commodity-wide basis through activities such as information sharing and training on proven methods and technologies. Finally, the lessons learned by BACP in a given commodity, disseminated through the planned mechanisms as well as the media and word-of-mouth, may also have great replication value for other agricultural commodities.
2.5 SUSTAINABILITY
The aim of sustainability is intrinsic to the process of market transformation, since purchasers who consistently prefer goods produced to BMP standards will reward those who produce such goods, encouraging and enabling investment in their expanded production. This is an effect seen in such areas as the worldwide growth of ‘fair trade’, ‘organic’ and FSC-certified produce sales. Connected logic applies to all the other aspects of the BACP, in that discoveries and the dissemination of knowledge about how to implement BMPs creates an irreversible recognition that they could be adopted if conditions were right,
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while raised awareness of BMPs among financial institutions might simultaneously make it possible to adopt them. It is hard to identify a starting point in this network of causality, but the fact that the BACP will address all these dimensions at once, using established agribusiness forums to ‘crack’ each commodity, country and sector, means that no specific starting point is needed. Instead, one can envision that as all the pieces of the puzzle are played, there will eventually come a ‘tipping point’ at which market and agribusiness transformation occurs.
The project document lists a number of ways in which the social and business sustainability of the whole system will be promoted, drawing attention to the range of benefits flowing from the adoption of the BMPs. All of these may contribute to a ‘virtuous cycle’, and include:
the reduced use of toxic agrochemicals benefits local and downstream biodiversity, as well as farmers and agricultural labourers and their families living in neighbouring and downstream communities;
reduced soil erosion and effluents improves freshwater habitat, benefiting those who depend on fish and other aquatic organisms for protein;
retiring marginal agricultural lands on existing farms results in increased natural habitat for wildlife, reduced erosion, wildlife corridors, protection of riparian areas, and supply of various environmental goods and services;
reduced pesticide use makes produce more attractive to consumers while also being more wildlife friendly;
improved soil organic matter content increases soil health and habitat quality for other species, but also increases productivity, reduces input use and increases net profits.
3. OBSERVATIONS IN RELATION TO SECONDARY GEF ISSUES
3.1 LINKAGES TO OTHER FOCAL AREAS
Climate Change. The encouragement of planting degraded and often treeless lands with tree crops suggests that there may be a net carbon storage advantage that could provide a linkage to the Focal Area on Climate Change. Maintenance of soil ecology may also be relevant here.
International Waters. Reduced nitrogen run-off may be expected to contribute to the decline of eutrophication, anoxia and dead zones in marine environments, and reduced soil erosion may reduce damage to coral reefs, both of which may provide a linkage to the Focal Area on International Waters.
Land Degradation. The application of BMPs that set aside and/or restore natural ecosystems, and that result in sustainable tree crops being introduced on degraded land, should provide a linkage with the Focal Area on Land Degradation.
Persistent Organic Pollutants. Many pesticides that are still in use in many countries are persistent organic pollutants or POPs (including Aldrin, Chlordane, DDT, Dieldrin, Endrin, Heptachlor, Hexachlorobenzene and Mirex), so any reduction in pesticide usage might be expected to contribute to the Focal Area on POPs.
3.2 LINKAGES TO OTHER PROGRAMMES AND ACTION PLANS
The BACP will seek synergy and complementarity with other international commodity initiatives, including:
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International Finance Corporation (IFC) mainstream operations; other IFC Programs, including the Linkages Program which features outreach to small and medium
enterprises, and the GEF-funded, IFC-managed, Environmental Business Finance Program; industry initiatives, including the IFC/WWF BMP Initiative, Roundtable on Sustainable Palm Oil, the
Sustainable Agriculture Initiative Platform, the World Cocoa Foundation, Better Sugarcane Initiative, and the Roundtable for Responsible Soy Production; and
those by non-governmental organisations, such as the Rainforest Alliance, the World Wide Fund for Nature, The Nature Conservancy, and Conservation International.
The proponent is part of the World Bank Group, and the BACP’s collaboration with other GEF implementing agencies will synergise with policy or regulatory reform, government capacity building, smallholder rural initiatives, and other initiatives that are being progressed by the Group. The BACP will focus on any such engagement that might help remove regulatory barriers to the use of BMPs in the target countries.
Collaboration with UNEP is envisioned, such as with some of the industrial forums set up by its Division of Technology, Industry and Economics, including that on Sustainable Production and Consumption Activities, and its Initiative on Integrated Assessment of Trade-Related Policies and Biological Diversity in the Agriculture Sector.
Other examples of potentially complementary initiatives include the UNDP’s Conserving Globally Significant Biodiversity in Cocoa Production Landscapes in West Africa, and UNEP’s Conservation & Use of Crop Genetic Diversity to Control Pests & Diseases in Support of Sustainable Agriculture.
3.3 OTHER ENVIRONMENTAL EFFECTS
The overall environmental impact of the project should be favourable if its key outputs are obtained. Moreover, the potential for beneficial replication, multiplication and influence by similar initiatives across numerous other commodities, sectors and countries is a real one.
3.4 INVOLVEMENT OF STAKEHOLDERS
The proponent (IFC) has a long history of engagement with the agricultural sector, and the project document summarizes about US$500 million in investments by its Agribusiness Department in the four BACP target crops and in all the target countries except Ghana. The project document also makes clear that the proponent has long been engaged, through the IFC/WWF BMP Initiative, with international, multi-stakeholder, industry-led commodity roundtables for the target crops. This deep familiarity with the whole sector and its participants shows through clearly in the quality of analysis and explanation of the project.
Many stakeholders will be affected by or involved in the project at implementation, including private producers, traders, food manufacturers and retailers, financial institutions, civil society (e.g. NGOs, academics), local and national governments, commodity roundtables, and bilateral and multilateral organizations, research institutes and local communities. Many of these will be accessed through the proponent’s participation in the various commodity roundtables, with the membership of the palm oil forum alone including over 100 important actors in all the above categories, representing up to half one-half the volume of palm oil traded world-wide.
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Smallholders account for about a third of palm oil production, and most African cocoa production, and the BACP will work with them indirectly through larger organizations, such as mills (for palm oil and sugar) or traders (for cocoa), which often have an inter-dependent monopoly relationship with surrounding smallholders. Local communities and stakeholders will be crucial at the level of individual projects, and their participation and consultation will be needed in view of their knowledge of local biodiversity and production methods.
3.5 CAPACITY-BUILDING ASPECTS
Capacity-building impact is most likely to occur within the commodity roundtables, where the BACP proposes to provide core support to the forum secretariat, while offering technical assistance to develop measurable indicators, identifying information gaps or the need to organise existing knowledge, supporting research on indicators or standards, identifying and vetting global performance standards for each indicator, supporting the field testing of the proposed standards, and supporting efforts to understand the limitations or strengths of global standards.
Several of the example projects annexed to the project document specify an explicit capacity building function, for example: “The project will build capacity at cooperative and farmer level and involve the following activities: (a) build capacity at cooperative level to ensure financial credibility, transparency of management, knowledge of the member base and baseline data collection (b) hands-on training of farmers through instruction on demonstration plots (c) establishment of project logistics and product traceability (e.g., local bagging stations at coop level, local cocoa quality certification).”
3.6 INNOVATIVENESS
The BACP is rooted in recent efforts such as the IFC/GEF Environmental Business Finance Programme and the IFC/WWF BMP Initiative, and in current and emerging initiatives, such as the commodity stakeholder forums. It is nevertheless highly innovative, in attempting a rational, integrated process of transformation across huge sections of global agriculture, engaged in particular with critical locations where change can be expected to benefit biodiversity most strongly.
3.7 INCREMENTAL COST ANALYSIS
a) Baseline scenario
The agricultural commodity sector would probably transition more slowly to more sustainable production practices because of regulatory pressures from local governments and to service the small but growing consumer demand for more low-input agricultural products, mainly in developed countries. The work of the roundtables is ambitious, but slow, and meanwhile irrecoverable and large-scale biodiversity loss will occur due to soil erosion, water contamination, loss of habitat, pesticide over-use, etc. It is also unlikely that biodiversity of global significance would be specifically factored into the definition and implementation of BMPs.
b) GEF Alternative
This will accelerate the transformation to sustainable production practices, while helping to save significant global biodiversity by applying targeted TA in support of the market transformation process. GEF support will help to remove the existing barriers and push private sector players to focus their efforts in a direction consistent with the CBD and the GEF. In addition, BACP’s funds will ensure that the
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roundtables maintain a focus on biodiversity of global significance, and that impacts are addressed as effectively as possible.
c) Project selection criteria
These aim to ensure that all projects meet GEF incrementality requirements, and include: that the proposal must demonstrate that without funding from BACP, the project would not have
taken place, or that it would have taken place at a later date, at a smaller scale, or with less benefits to biodiversity of global significance.
that the proposed activity must contribute to bringing about a marked change in the impact of farming or primary processing on biodiversity, or in the market uptake of commodities with a lowered biodiversity impact.
that the proposed measures go beyond compliance with national or local laws and regulations; that the proposed measures meet or exceed IFC’s Policy and Performance Standards on Social &
Environmental Sustainability.
d) Example projects
Project 1: Cocoa farmer training in Cote d’Ivoire.Objective: To develop a model of ‘biodiversity-friendly’ cocoa farming.Proponent: A Trader active in target West African countries.Background: The Trader is currently providing Technical Assistance to farmers in order to make sure the cocoa delivered was produced according to better environmental and social management practices. The TA is provided in the context of a supply-chain finance arrangement: the trader provides the TA to improve farmer practices; in exchange, the farmer commits to using these practices. In parallel, the Trader offers the farmer financing to allow the purchase of inputs for the coming crop; a commitment to sell to the Trader acts as collateral for the financing.Investment: The BACP grant would enable the Trader to extend its TA to a much wider range of farmers ensuring greater availability of sustainable cocoa. The grant would also be used to review and enhance the components of the Trader’s TA that address biodiversity of global significance.
Project 2: Smallholder training in Indonesia.Objective: To develop a model of ‘biodiversity-friendly’ smallholder oil palm cultivation.Proponent: The largest refiner and exporter of palm oil and palm-related products in Indonesia.Background: The refining/exporting group depends on smallholders who sell to its palm oil mills. These mills have a symbiotic relationship with surrounding smallholders. They depend on smallholders’ production for their economic viability, and the smallholders, for reasons of geography and perishability are captive sellers to the mill. The mills are therefore in a position to work with smallholders to improve their faming practices.Investment: The BACP grant would allow: (a) development of criteria for sustainability at smallholders level, focussed on practices which lessen farming impacts on biodiversity; (b) implementation of pilot or research activities around one or several operations in Indonesia; (c) feedback and dissemination of results and lessons learned, focussing on those related to biodiversity; and (d) participation in the RSPO TWG on smallholders, focussing on biodiversity issues and yielding recommendations for the definition, testing, and adoption of economically viable BMPs that lessen the impacts of production on biodiversity.
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3.8 MONITORING AND EVALUATION ARRANGEMENTS
a) Impact monitoring
Ten percent of the BACP budget is allocated to M&E. This amount will cover the design and implementation of the detailed M&E plan, including a baseline, mid-term and final evaluation, as well as efforts to assess progress in market transformation, and the ensuing improvement in biodiversity impacts. It is notoriously difficult to monitor a project’s direct impact on biodiversity, however, and all the more so when the project spans three continents, and production landscapes covering over 125 million hectares. A proxy will therefore be used, based on the regular audits to check on biodiversity performance that are embedded in the quality assurance, verification or certification arrangements that are made for each commodity. Monitoring the establishment, implementation and functioning of these systems will help to demonstrate impacts, provided they include satisfactory biodiversity standards. It will also be necessary, however, to link the adoption of BMPs to precise area- or species-based metrics, while the broader landscape/land-use activities will be evaluated separately.For commodities where there is not yet a certification or verification scheme in place that addresses biodiversity, the BACP will work with the roundtables to establish one. Hence monitoring will become integral to the work of the commodity roundtables, and will become third-party oriented, global, and permanent (in short, mainstreamed). The BACP will also review existing standards against minimum requirements, and will help improve them if necessary. By working through the roundtables to set up a monitoring scheme, the BACP’s role becomes to ensure that the decisions taken by the roundtables lead to a credible and effective monitoring system.
This will require the following steps to be taken with each roundtable and TWGs concerned with biodiversity issues: (a) confirm that the roundtables are sufficiently inclusive and transparent for products such as principles, criteria, indicators84 and standards to be acceptable to a wider audience; (b) define principles, criteria, performance standards, indicators and verifiers; (c) ensure that these are accepted by the full roundtable membership and other stakeholders; and (d) ensure that a credible verification scheme is put in place to support the performance criteria.
The specific indicators that BACP would support will vary somewhat by commodity, but will probably consist of the following: (a) existence of landscape zoning with due attention to biodiversity of global significance; (b) existence of a farm land management plan consistent with the above zoning; (c) level of on-farm natural habitat (selected according to biodiversity values and financial considerations), and in particular riparian area protection; (d) use of soil amendments85 per unit of production (proxy for soil quality, and for effluents and downstream water quality); (e) toxicity of kg of active ingredients of pesticides per ton of production; (f) water use per unit of production.
b) Baseline study
For the market transformation baseline, the BACP will monitor its overall impact on its target commodity markets, in order to measure the extent to which it meets its market transformation objectives. The following market indicators are relevant: the number of financial institutions that incorporate biodiversity concerns into their investment
screens for the target commodities (including screens for syndicated loans);
84 e.g. water quality, level of inputs per unit of production, proportion of riparian and sloped land set aside.85 A soil amendment is any material added to a soil to improve its physical properties, such as water retention, permeability, water infiltration, drainage, aeration and structure; the goal is to provide a better environment for roots.
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the existence of verification systems (or other systems such as certification) that incorporate the biodiversity performance targets defined by the roundtables;
the percentage of global trade represented by companies who buy certified or verified product; and the percentage of production and of global trade allocated to certified or verified product.
These indicators can be quickly assessed through a quick “barometer-type” market survey. The barometer survey would be undertaken in conjunction with the roundtable. It would help the roundtable take the pulse of the global market for Better commodities and track its progress through time. It is expected that the cost of the barometer survey would be shared with the roundtables.
c) Mid-term and final evaluation
The mid-term and final evaluations will revisit the studies conducted during the baseline evaluation, assess the changes that have taken place using the indicators devised by the roundtables, and discuss causality/links to BACP. The design of the final evaluation might be changed to reflect lessons learned in the course of the mid-term evaluation.
d) Monitoring and evaluation of individual projects
All site-specific projects funded by BACP will need to track baseline and final production conditions, according to indicators agreed at the outset. These indicators will vary by project and by BMP, but should generally reflect the production-level indicators set out above. Where possible, site-specific projects should also track relevant costs (changes in input costs, labour costs, etc.) and yields, as this information will be very useful for further dissemination of the BMP in question. The cost of monitoring site-specific projects will be integrated into the project’s own budget.
4. CONCLUSIONS
This has the makings of an excellent project document, which describes an important, innovative and holistic initiative which is likely to have profoundly beneficial effects on global biodiversity. This reviewer has only the following minor reservations and suggestions for further improvement:
Reference could be made to the fact that land conversion has also undermined the lives, livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation (see suggested text in Section 2.1).
It would help to understand how Malaysia will be dealt with in this system (i.e. is it a target country, and will Peninsular/federal, Sabah and Sarawak be treated separately – see Footnote 1).
Reference should be made to nitrogen deposition as a CBD indicator of biodiversity loss, and one of the inputs that BMPs would reduce (see suggested text in Section 2.1).
Reference should be made to salinisation in the context of over-use of water in agriculture (see suggested text in Section 2.1).
Contraindications for planting on degraded land should be considered to include: (a) that such areas may already have lost much soil quality; (b) that criteria have yet to be agreed for deciding when the damage to an ecosystem is so extreme and irreversible as to justify sacrificing it through conversion to agriculture; and (c) that the processes by which lands are degraded (farming, ranching, etc.) may generate ownership claims that could affect the cost and ease of acquisition.
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Note the correct name of UNEP’s Division of Technology, Industry and Economics;
There is a potential concern that moral hazard is inherent to any mechanism that brings together key players in a biodiversity-consuming industry, generates best practices, and then certifies its own members as being compliant with ‘biodiversity-friendly’ practices, which could be viewed as a way to avoid punishment by consumers upset by the destruction of rain forests. In this sense, full participation of the BACP in the roundtables and TWGs is a strength which could be emphasized.
Organic farming methods might be considered as one of the BMP options, in view of the recent market transformation in favour of organic products in many countries.
A final point to consider for the BMPs is that too often agricultural plantations are not just monocultures at the species level, but also at the clonal level. Large stands of genetically-identical plants are at high risk of pest and disease attack, and the maintenance of on-farm genetic diversity should be explicitly encouraged by the project.That said, in the view of this reviewer, the BACP is an important and innovative project, with great potential for generating global environmental benefits, should proceed swiftly to the next phase of its development.
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ANNEX 13: TRACKING TOOL FOR GEF BIODIVERSITY FOCAL AREA STRATEGIC PRIORITY TWO: MAINSTREAMING
BIODIVERSITY IN PRODUCTION LANDSCAPES/SEASCAPES AND SECTORS
Introduction
The goal of the Biodiersity and Agricultural Commodities Program (BACP) is to contribute to preserving global genetic species and ecosystem diversity in agricultural production landscapes, by transforming markets for target agricultural commodities (palm oil, cocoa, sugarcane, and soy). BAP is a global program. Its initial countries of operation are countries where there is a strong overlap between the production of one of more of BACP’s target agricultural commodities, and globally significant biodiversity. These countries are: Brazil (essentially sugarcane and soy, also palm oil and cocoa), Côte d'Ivoire (cocoa), Ghana (cocoa), Indonesia (palm oil, cocoa), and Malaysia (palm oil). This list is not final. IFC expects that, in the course of the Program’s ten-year lifetime, additional countries will participate in the Program.
Futheremore, the extent of Program activities in any given country depends on the market situation in that country. Therefore, while IFC’s targets, presented below, are global, it does not make sense, within the logic of the program, to try to break them down by country. Therefore, the country breakdowns contained in this tracking tool are for indicative purposes only. IFC will submit tracking tools at mid-term, for each country in which significant program activity has taken place.
In addition it is important to note that most of BACP’s impact will be indirect; indeed, by working through international multi-stakeholder roundtables, BACP will be in a position to disseminate findings quickly and effectively. BACP’s M&E system --which is also innovative-- will precisely try and link, in a reliable way, market transformation and agricultural verification systems with field impact on biodiversity.
Finally, BACP through its M&E component will also work on defining suitable indicators as those do not exist to date. For example, further work is needed to establish, in reliable way a link between global volume of transformed product and a percentage of global production area.
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I. Project General Information
1. Project Name: Biodiversity and Agricultural Commodities Program (BACP) 2. Project ID (GEF): 26183. Project ID (IA): 523359 4. Implementing Agency: World Bank (International Finance Corporation)5. Country(ies): Global; initially, Brazil, Côte d'Ivoire, Ghana, Indonesia, Malaysia.
Name of reviewers completing tracking tool and completion dates:
Name Title AgencyWork Program Inclusion
Catherine Cassagne
Lead, Biodiversity Practice Area
International Finance Corporation (IFC)
Project Mid-term
Final Evaluation/project completion
5. Project duration: Planned a first phase of 5 years, and a total duration of 10 years. The decision to embark upon a second phase will be made at program mid-term, based on an assessment of certain triggers. See Program Appraisal Document for more detail. Actual _______ years
6. Lead Project Executing Agency (ies): IFC
7. GEF Operational Program: drylands (OP 1) X coastal, marine, freshwater (OP 2) X forests (OP 3) mountains (OP 4) agro-biodiversity (OP 13)X integrated ecosystem management (OP 12) X sustainable land management (OP 15)
Other Operational Program not listed above: OP #14 (Persistent Organic Pollutants)
8. Production sectors and/or ecosystem services directly targeted by project:
8. a. Please identify the main production sectors involved in the project. Please put “P” for sectors that are primarily and directly targeted by the project, and “S” for those that are secondary or incidentally affected by the project. Agriculture________P
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Fisheries__________Forestry__________STourism___________Mining_______Oil__________Transportation_________Other (please specify)___________
8. b. For projects that are targeting the conservation or sustainable use of ecosystems goods and services, please specify the goods or services that are being targeted, for example, water, genetic resources, recreational, etc
1. BACP is a grant-making Program, funds will be made available to co-finance projects proposed by commodity market stakeholders (producers, NGOs, etc). Ecosystem services may be part of individual projects funded by the Program but none have specifically been targeted at this point. 2. ________________3. ________________4. ________________
II. Project Landscape/Seascape Coverage
9. a. What is the extent (in hectares) of the landscape or seascape where the project will directly or indirectly contribute to biodiversity conservation or sustainable use of its components? An example is provided in the table below.
Targets and Timeframe
Project Coverage
Foreseen at project start
Achievement at Mid-term Evaluation of Project
Achievement at Final Evaluation of Project
Landscape/seascape86 area directly 87 covered by the project (ha)
NA (a)
Landscape/seascape area indirectly88
covered by the project (ha)
Minimum of 5% of total global area in target commodities. No target per country.
86 For projects working in seascapes (large marine ecosystems, fisheries etc.) please provide coverage figures and include explanatory text as necessary if reporting in hectares is not applicable or feasible. 87 Direct coverage refers to the area that is targeted by the project’s site intervention. For example, a project may be mainstreaming biodiversity into floodplain management in a pilot area of 1,000 hectares that is part of a much larger floodplain of 10,000 hectares. 88 Using the example in footnote 5 above, the same project may, for example, “indirectly” cover or influence the remaining 9,000 hectares of the floodplain through promoting learning exchanges and training at the project site as part of an awareness raising and capacity building strategy for the rest of the floodplain. Please explain the basis for extrapolation of indirect coverage when completing this part of the table.
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Explanation for indirect coverage numbers:
(a) BACP is a grant-making facility which will allocate funds to projects which will help the BACP meet its biodiversity goals. A good number, but not all, of these projects will be pilot or demonstration projects with high replication value. Most projects will be undertaken within the context of the ongoing work of international multi-stakeholder commodity roundtables, in order to test biodiversity-related principles and criteria put forth by the roundtables (see Project Appraisal Document for more detail). Project proposals will be solicited and reviewed on an ongoing basis over the next 3-5 years. Therefore it is too soon to say at this point what specific area would be directly covered by on-site interventions funded by BACP grants. A good number of projects will also be to define biodiversity indicators and verifiers, and document associated better management practices, therefore with an even more indirect field effect. It is also important to stress that BACP target is global, not by country, therefore certain countries might have a larger impacted area than others.
(b) It is estimated that by the end of BACP’s full ten-year lifetime, the program can have had impacts on a minimum area of 5% of the total agricultural land in the BACP target commodities (palm oil, cocoa, sugarcane and soy). The target will need to be confirmed by the M&E unit during implementation.
The area under cultivation for the primary commodities BACP is targeting in Brazil (sugarcane and soy) is 18.4 MM ha.The area under cultivation for the primary commodities BACP is targeting in Indonesia (palm oil and cocoa) is 2.4 MM ha
The area under cultivation for the primary commodity BACP is targeting in Malaysia (palm oil) is 2.9 MM ha.
The area under cultivation for the primary commodity BACP is targeting in Côte d'Ivoire (cocoa) is 2.4 million ha.
The area under cultivation for the primary commodity BACP is targeting in Ghana (cocoa) is 1.5 million ha.
NB: there is no target per country, only an approximate disagregation of the global target can be made by the M&E Unit.
9. b. Are there Protected Areas within the landscape/seascape covered by the project? If so, names these PAs, their IUCN or national PA category, and their extent in hectares.
Protected areas may play a role in individual projects submitted to BACP but are not a focus of the Program. If protected areas are concerned by projects, the table below will then be filled.
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Name of Protected Areas IUCN and/or national category of PA
Extent in hectares of PA
1.2.3.4…
III. Management Practices Applied
10.a. Within the scope and objectives of the project, please identify in the table below the management practices employed by project beneficiaries that integrate biodiversity considerations and the area of coverage of these management practices? Note: this could range from farmers applying organic agricultural practices, forest management agencies managing forests per Forest Stewardship Council (FSC) guidelines or other forest certification schemes, artisanal fisherfolk practicing sustainable fisheries management, or industries satisfying other similar agreed international standards, etc. An example is provided in the table below.
Targets and Timeframe
Specific management practices that integrate BD
Area of coverage foreseen at start of project
Achievement at Mid-term Evaluation of Project
Achievement at Final Evaluation of Project
1. 2.3…
The project will promote the adoption of Better Management Practices (BMP) in the production of palm oil, cocoa, sugarcane, and soybeans when these practices help achieve BACP’s biodiversity goals. BMPs are context-dependent and no specific BMPs have been singled out for BACP to promote; there may be a few, though, deserving to be promoted and replicated in similar conditions; the BMPs are seen as a means to an end (increased biodiversity in agricultural landscapes) rather than as an end unto themselves. BACP is not taking a prescriptive approach on BMPs but rather will engage with multi-stakeholder initiatives such as roundtables, which define and commit to common principles, criteria, indicators, targets for these indicators and associated verification methods. Then, the members of these initiatives must find the ways to achieve the agreed goals. BACP will support the biodiversity components of these initiatives, and the roundtables’ members in their efforts to implement those BMPs that would help them best meet their stated biodiversity goals
In the case of Brazil, the BMPs concerned would be in soy production, and in sugarcane production and milling. The soy roundtable is in the process of defining the Principles and
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Criteria for responsibly-grown soy: it has set up a Technical Working Group to work on these issues, and expects to have further information on this topic in the course of 2007. Also in 2007, the sugar roundtable is undertaking a study, with funding from IFC’s Technical Assistance Trust Funds, to identify and document the variety of Better Management Practices that exist worldwide.
In the case of Malaysia, the BMPs concerned would be in palm oil production, and would allow palm oil producers to adhere to the following RSPO Criteria:
Criterion 5.1 Aspects of plantation and mill management that have environmental impacts are identified, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement.
Criterion 5.2 The status of rare, threatened or endangered species and high conservation value habitats, if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations.
Criterion 7.1 A comprehensive and participatory independent social and environmental impact assessment is undertaken prior to establishing new plantings or operations, or expanding existing ones, and the results incorporated into planning, management and operations.
Criterion 7.3 New plantings since November 2005 (which is the expected date of adoption of these criteria by the RSPO membership), have not replaced primary forest or any area containing one or more High Conservation Values.
In the case of Indonesia, the BMPs concerned would be in palm oil production and in cocoa. The palm oil BMPs would allow producers to adhere to the following RSPO Criteria:
Criterion 5.1 Aspects of plantation and mill management that have environmental impacts are identified, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement.
Criterion 5.2 The status of rare, threatened or endangered species and high conservation value habitats, if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations.
Criterion 7.1 A comprehensive and participatory independent social and environmental impact assessment is undertaken prior to establishing new plantings or operations, or expanding existing ones, and the results incorporated into planning, management and operations.
Criterion 7.3 New plantings since November 2005 (which is the expected date of adoption of these criteria by the RSPO membership), have not replaced primary forest or any area containing one or more High Conservation Values.
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The cocoa BMPs will vary depending on the conditions of the landscape and farmers of a given project, and may include the addition of indigenous shade trees. In the interest of sustainability BMPs supported by BACP must bring clear economic benefits to the farmers.
In the case of Ghana, BMPs will vary depending on the conditions of the landscape and farmers of a given project, and may include the addition of indigenous shade trees. In the interest of sustainability BMPs supported by BACP must bring clear economic benefits to the farmers.
In the case of Côte d'Ivoire, the BMPs will vary depending on the conditions of the landscape and farmers of a given project, and may include the addition of indigenous shade trees. In the interest of sustainability BMPs supported by BACP must bring clear economic benefits to the farmers.
10. b. Is the project promoting the conservation and sustainable use of wild species or landraces? ____Yes X No
If yes, please list the wild species (WS) or landraces (L):
Species (Genus sp., and common name)
Wild Species (please check if this is a wild species)
Landrace (please check if this is a landrace)
1. 2.3.4…
10. c. For the species identified above, or other target species of the project not included in the list above (E.g., domesticated species), please list the species, check the boxes as appropriate regarding the application of a certification system, and identify the certification system being used in the project, if any. An example is provided in the table below.
Certification
Species
A certification system is being used
A certification system will be used
Name of certification system if being used
A certification system will not be used
1. 2…
IV. Market Transformation and Mainstreaming Biodiversity
11. a. For those projects that have identified market transformation as a project objective, please describe the project's ability to integrate biodiversity considerations into the mainstream economy by measuring the market changes to which the project contributed. The sectors and subsectors and measures of impact in the table below are illustrative examples, only. Please complete per the objectives and specifics of the project.
Name of the Unit of measure Market Market Market
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market that the project seeks to affect (sector and sub-sector)
of market impact
condition at the start of the project
condition at midterm evaluation of project
condition at final evaluation of the project
E.g., Sustainable agriculture (oil palm, cocoa, sugarcane, soy)
Companies representing 10% of global trade volumes buy certified or verified product.
Producers representing 25% of global trade in target commodities are engaged in verification or certification systems
Companies that have committed to land set-asides have followed through on their commitments.
Adoption of best management practices is linked to biodiversity impacts beyond the commodity production areas.
For Brazil: Sugarcane, soy: no roundtable- verified sustainable product on the market. For Indonesia: no roundtable-verified sustainable palm oil on the market. Verification protocol to be defined in 2007.
For Malaysia: no roundtable-verified palm oil on the market. Verification protocol to be defined in 2007.
For Ghana: no biodiversity friendly cocoa on the market as such. For Côte d'Ivoire: no biodiversity friendly cocoa on the market as such. Rainforest-Alliance- certified cocoa is in early stages of production.
11. b. Please also note which (if any) market changes were directly caused by the project.____________________________________________________________________________________________________________________________________
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________________________________________________________________________________________________________________________________________________________________________
V. Improved Livelihoods
12. For those projects that have identified improving the livelihoods of a beneficiary population based on sustainable use /harvesting as a project objective, please list the targets identified in the logframe and record progress at the mid-term and final evaluation. An example is provided in the table below
Improved Livelihood Measure
Number of targeted beneficiaries (if known)
Please identify local or indigenous communities project is working with
Improvement Foreseen at project start
Achievement at Mid-term Evaluation of Project
Achievement at Final Evaluation of Project
1.
2.3.
The BACP does not commit to have a positive impact on livelihoods but it claims no net negative impact on such. However, projects with positive social impacts will be preferred for financing over the others, all other things being equal. In such cases, the results will be documented.
VI. Project Replication Strategy
13. a . Does the project specify budget, activities, and outputs for implementing the replication strategy? Yes___ X No___
There are two budget line items that relate explicitly to replication; these are described below. In addition, each project that receives BACP support will need to have a replication component, as specified in the Project Selection Criteria. The Project Selection Criteria related to replication are:
266. The proposal should give concrete examples of how the project can or will be replicated. All other things being equal, the BACP will favor projects with high replication value.
267. In the interests of replicability, preference will be given to projects that include a private sector partner committed to scaling up practices developed or tested via the BACP.
268. All projects must include an information dissemination component, to share lessons learned.
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The sum of $745,000 (13% of the allocation for project support) is set aside for support to commodity Roundtables. The Roundtables are inherently a replication mechanism. Through their Technical Working Groups, newsletters, and members’ meetings, they ensure communication among stakeholders (producers, but also traders, processors, retailers, NGOs, financiers, etc) on developments that will enable members to adhere to the Roundtables’ biodiversity principles.
The M&E Plan includes support to Learning Networks (e.g., the Roundtables) within each commodity. The Plan stipulates organizing at least one Learning Network training event per year.
13. b. Is the replication strategy promoting incentive measures & instruments (e.g. trust funds, payments for environmental services, certification) within and beyond project boundaries?Yes___X No___
If yes, please list the incentive measures or instruments being promoted:Through its work with industry groups such as the roundtables mentioned above, BACP might support putting in place certain certification or verification schemes (biodiversity aspects). Individual projects might also involve market-based payments for ecosystem services.
13. c. For all projects, please complete box below. Two examples are provided.Replication Quantification Measure (Examples: hectares of certified products, number of resource users participating in payment for environmental services programs, businesses established, etc.)
ReplicationTarget Foreseen at project start
Achievement at Mid-term Evaluation of Project
Achievement at Final Evaluation of Project
1. Hectares of production landscapes affected by initiatives of the Program.
Will be defined by M&E unit as a % of total area under production in target commodities. It will be over 5%.
2. Number of producers adopting BMPs promoted by BACP
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VII. Enabling Environment
For those projects that have identified addressing policy, legislation, regulations, and their implementation as project objectives, please complete the following series of questions: 18a, 18b, 18c.
An example for a project that focused on the agriculture sector is provided in 18 a, b, and c.
14. a. Please complete this table at work program inclusion for each sector that is a primary or a secondary focus of the project. Please answer YES or NO to each statement under the sectors that are a focus of the project.
Indonesia:
SectorStatement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policy YBiodiversity considerations are mentioned in sector policy through specific legislation
Y
Regulations are in place to implement the legislation YThe regulations are under implementation YThe implementation of regulations is enforced NEnforcement of regulations is monitored N
Malaysia
SectorStatement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policy YBiodiversity considerations are mentioned in sector policy through specific legislation
Y
Regulations are in place to implement the legislation Y
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The regulations are under implementation YThe implementation of regulations is enforced NEnforcement of regulations is monitored N
Côte d'Ivoire
SectorStatement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policy YBiodiversity considerations are mentioned in sector policy through specific legislation
Y
Regulations are in place to implement the legislation YThe regulations are under implementation NThe implementation of regulations is enforced NEnforcement of regulations is monitored N
Ghana SectorStatement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policy YBiodiversity considerations are mentioned in sector policy through specific legislation
Y
Regulations are in place to implement the legislation YThe regulations are under implementation NThe implementation of regulations is enforced NEnforcement of regulations is monitored N
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14. b . Please complete this table at the project mid-term for each sector that is a primary or a secondary focus of the project. Please answer YES or NO to each statement under the sectors that are a focus of the project.
Sector
Statement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policyBiodiversity considerations are mentioned in sector policy through specific legislationRegulations are in place to implement the legislationThe regulations are under implementationThe implementation of regulations is enforcedEnforcement of regulations is monitored
14. c. Please complete this table at project closure for each sector that is a primary or a secondary focus of the project. Please answer YES or NO to each statement under the sectors that are a focus of the project.
Sector
Statement: Please answer YES or NO for each sector that is a focus of the project.
Agriculture Fisheries Forestry Tourism Other (please specify)
Other (please specify)
Biodiversity considerations are mentioned in sector policyBiodiversity considerations are mentioned in sector policy through specific legislationRegulations are in place to implement the legislationThe regulations are under implementationThe implementation of regulations is enforcedEnforcement of regulations is monitored
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All projects please complete this question at the project mid-term evaluation and at the final evaluation, if relevant:
14. d. Within the scope and objectives of the project, has the private sector undertaken voluntary measures to incorporate biodiversity considerations in production? If yes, please provide brief explanation and specifically mention the sectors involved.
An example of this could be a mining company minimizing the impacts on biodiversity by using low-impact exploration techniques and by developing plans for restoration of biodiversity after exploration as part of the site management plan.
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
VIII. Mainstreaming biodiversity into the GEF Implementing Agencies’ Programs
15. At each time juncture of the project (work program inclusion, mid-term evaluation, and final evaluation), please check the box that depicts the status of mainstreaming biodiversity through the implementation of this project with on-going GEF Implementing Agencies’ development assistance, sector, lending, or other technical assistance programs.
Time Frame
Status of Mainstreaming
Work Program Inclusion
Mid-Term Evaluation
Final Evaluation
The project is not linked to IA development assistance, sector, lending programs, or other technical assistance programs.The project is indirectly linked to IAs development assistance, sector, lending programs or other technical assistance programs.The project has direct links to IAs development assistance, sector, lending programs or other technical assistance programs.
YES
The project is demonstrating strong and sustained complementarity with on-going planned programs.
YES
IX. Other Impacts
16. Please briefly summarize other impacts that the project has had on mainstreaming biodiversity that have not been recorded above.
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ANNEX 14: PRELIMINARY MARKET TRANSFORMATION STRATEGY FOR PALM OIL
Note: this preliminary Strategy will be finalized by the BACP Project Management Unit at the beginning of program implementation and it will be approved by the Steering Committee
1. INTRODUCTION
1.1. BACP goals and funding criteria The Biodiversity and Agricultural Commodities Program (BACP) is a program funded by the Global Environment Facility (GEF) and the International Finance Corporation (IFC) and executed by the IFC. Its goal is to contribute to the preservation of global genetic, species, and ecosystem diversity within agricultural production landscapes, by transforming selected commodity markets. BACP will work in four commodities: palm oil, palm oil, sugarcane, and soybean. As a market-based program, BACP will support projects in four areas:
The enabling environment, including dialogue with industry groups and government, and research and case studies to define and document the economic benefits of biodiversity.
Improving production (supply side), for example through industry-sponsored training programs for farmers, emphasizing biodiversity-friendly practices.
Building demand for biodiversity-friendly production, for example, through support to certification or verification schemes.
Helping provide finance to farmers that encourages the adoption of biodiversity-friendly practices.
In addition, the M&E Unit of BACP will test and establish a model to link actual impact with verification systems and to disseminate lessons learned.
The present Market Transformation Strategy for Palm Oil defines the priorities along which BACP will allocate funds for palm oil projects in the first 2-3 years of implementation. The BACP budget for palm oil in the first five years of implementation is approximately US$2,000,000.
All funds given by BACP must be matched by at ratio of at least 2:1 (two dollars of cofinance for every dollar of BACP funds). Funding decisions will be made on the basis of a proposal from the project sponsor that will be reviewed by the PMU and approved by the IFC. All proposals must meet the criteria established in Section I.K (BACP Project Cycle and Project Selection Criteria) of the BACP Program Appraisal Document (available at http://www.ifc.org/ifcext/enviro.nsf/Content/Biodiversity_BACP ).
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BACP will not channel funds to directly subsidize private sector firms; BACP funds may however be channeled through private sector actors in certain projects, in a transparent and verifiable manner, for a specific biodiversity-enhancing activity or project which meets the BACP’s criteria. In general, BACP funds will go to third parties such as NGOs, small local specialized agricultural or environmental consulting firms, associations, applied research institutions, field schools, foundations, etc. which are able to implement the technical assistance. Private sector partners at any step of the supply chain will be expected to provide co-financing leverage, both cash and in kind.
1.2 General observations on the market for biodiversity-friendly palm oilThe palm oil Market Transformation Strategy is shaped by the following general observations:
The Roundtable for Sustainable Palm Oil (RSPO) is an international, multi-stakeholder organization whose objective is to “promote the growth and use of sustainable palm oil through co-operation within the supply chain and open dialogue with its stakeholders.” RSPO has over 140 members, who represent at least one third of both the supply and the demand for globally traded palm oil;
The members of RSPO are organizations (including palm oil producers, purchasers, banks, and NGOs) which are committed to producing sustainable palm oil, and which therefore could be suitable partners for BACP;
IFC is an ordinary (voting) member of RSPO; The RSPO indicated in its November 2005 Board Meeting and in follow-up
emails and discussions that it is open to cooperation with BACP and sent a Letter of Intent to that effect;
The RSPO has approved a set of environmental and social Principles that define sustainable palm oil, accompanied by Criteria to determine whether the Principles are met. The Principles and Criteria (P&C) include biodiversity related ones. RSPO is currently conducting two-year field trials of the P&C;
In its 3rd General Assembly, RSPO also approved a Code of Conduct for its members by which these commit, among others, to engage into step by step processes to implement the P&C;
In addition, the RSPO has established a Verification Working Group, a Smallholder Task Force, and a Supply Chain Project which will develop a mechanism for traceability from plantation to end-user. All three of these RSPO activities are fully aligned with BACP’s objectives;
In November 2006, the General Assembly of RSPO accepted a proposal from IFC to create a Technical Committee on Biodiversity, which will be a full organ of the RSPO, dedicated to addressing biodiversity challenges that arise in the implementation of the Principles and Criteria.
In light of the above, the BACP Market Transformation Strategy for Palm Oil rests on close cooperation with RSPO.
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1.3 Report structureThe remainder of this report addresses each of the four BACP components listed above. It briefly presents the main findings related to each component, and their implications for the Strategy. The document also discusses short-term vs. long-term strategy, and identifies remaining information gaps. It attaches a background document with main facts and information sources.
2. ENABLING ENVIRONMENT
2. 1 Define Cooperation with RSPOThe RSPO Executive Board will need to approve the content of cooperation once BACP has received endorsement from the GEF CEO and approval from IFC. A formal agreement between BACP and RSPO, based on such document, will then be prepared.
The content of cooperation currently being discussed involves the following:
As proposed by RSPO, BACP would participate in the group responsible for the 2-year trial implementation of the P&C. This arrangement would allow BACP to obtain first hand a thorough understanding of priority areas and projects, and to provide input.
As proposed by RSPO, the Roundtable would share with BACP an RSPO P&C project matrix (currently under development) that lays out the relevant P&C criteria against proposed projects involving RSPO members. From this, BACP could evaluate which projects meet its funding criteria and where support could be offered, and could discuss potential partners with RSPO.
As proposed by RSPO, BACP would also co-finance and participate in a Biodiversity Technical Committee. At the third General Assembly of the RSPO (November 2006), IFC proposed that a Technical Committee on Biodiversity be established. RSPO members approved the proposal.
BACP, or IFC via a complementary project or activity, would also be part of the Smallholder Task Force, and the Verification Working Group, as these are also relevant to BACP. IFC participated in the physical meetings of these two working groups, held at the fourth RSPO meeting (November 2006).
The form of cooperation would be: BACP views RSPO as an essential ally for its work, providing guidance on
the sort of biodiversity-related activities BACP should support89, and a forum for contacts and dialogue within the palm oil community about biodiversity issues.
In exchange, BACP would support planned or potential future RSPO activities related to biodiversity, such as, for example, the activities listed above. Other project ideas might also arise (design & implementation of financial tools that can help level the playing field for expansion into degraded lands etc).
89 It is assumed that most if not all of those activities would involve RSPO members and/or support to RSPO activities.
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RSPO can coordinate projects but does not have resources to implement them. Projects would be implemented by a mix of RSPO members from industry, NGOs, and the financial sector, and local academic/research institutes, and these actors would be the direct recipients of BACP’s support.
In addition, BACP would help support the RSPO secretariat’s work on biodiversity matters.
Through its IFC contacts, BACP could help bring in new members to RSPO, if so requested.
RSPO board members and/or members of the Biodiversity Technical Committee will review palm oil proposals received by BACP, and will make recommendations concerning them.
BACP’s first palm oil implementation activity will be to formalize an agreement with RSPO, specifying how BACP and RSPO will cooperate.
2.2 Landscape-level HCV assessment Biodiversity impacts of palm oil production, as agreed to by all members of
RSPO, fall into two categories: impacts related to production on existing plantations (effluents, erosion, etc) and impacts related to expansion into native habitat. The latter can best be addressed on a regional or national scale (as opposed to being addressed by individual plantations). If, as expected, the biofuels market creates a significant demand for palm oil, it will be particularly urgent to protect areas with globally significant biodiversity from palm oil expansion, and this should be a top priority for BACP.
Therefore, BACP would support multi-stakeholder activities leading to landscape-level assessment of High Conservation-Values. These activities would result in a national or regional consensus on delineation of HCVs into which no future expansion of palm oil would take place.
BACP has already had detailed discussions with the Great Ape Survival Project (GRASP, under the auspice of UNEP) about a proposed HCV assessment project in Sumatra and Kalimantan. As suggested by the President of RSPO, if this project goes ahead and BACP opts to support it, BACP would ensure that RSPO industry members were part of the project. It is straightforward to see what concessions have been given out, which concessionaires are RSPO members, and then solicit the participation of those members.
BACP will support landscape-level assessment of HCV, so as to prevent future expansion of palm oil into areas containing biodiversity of global significance. Via its M&E component, BACP will also document the links between adoption of P&C and related BMPs and the landscape-level impacts.
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2.3 Participate in policy dialogue on palm oilThe policy environment in Malaysia and Indonesia play an important role in palm oil expansion. BACP will collaborate with the World Bank in land use policy debates for example on the Indonesian forestry sector, a complementary sector to palm oil, cocoa and other commodity production.
BACP will stay informed of World Bank activities and dialogues related to palm oil and forestry in Malaysia and Indonesia, and will offer its position and resources on relevant policy related activities.
IFC has conducted preliminary research into the Indonesian policy barriers to the production of better palm oil on which BACP might have the biggest impact. One of the most important policy opportunity identified is the re-classification of degraded forests to allow planting of sustainably produced palm oil. This will not be an easy task and will require the combined efforts of many government and non-government stakeholders, but the end result could be significantly reduced pressure on remaining natural forests and biodiversity of global value. Another needed policy reform is the strengthening of government extension services in Indonesia to educate smallholders on the use of integrated pest management methods. It will also be important to ensure an enabling policy environment for the establishment of certification programs for palm oil. Finally, to the extent that market-related payments for ecosystem services emerge, BACP can explore the feasibility of using such payments to promote the adoption of palm oil BMPs.
BACP will further explore how it can most effectively engage in the policy dialogue in Malaysia and Indonesia in order to support the production of biodiversity-friendly palm oil.
3. SUPPLY SIDE/PRODUCTION
As agreed in the RSPO, the main biodiversity impacts of palm oil production fall into two categories: impacts due to production practices and impacts due to expansion into natural habitat. BACP will address both, but with an emphasis on expansion into natural habitat.
3.1 Expansion into natural habitatRSPO Criterion 7.3 states: “New plantings since November 2005 (which is the date of adoption of all principles and criteria by the RSPO membership), have not replaced primary forest or any area containing one or more High Conservation Values.”
Preventing expansion of palm oil production into natural habitat, as defined above, is a priority for BACP. BACP will work with RSPO to determine the most effective ways to support the wide implementation of this criterion.
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3.2 HCV Assessment on Existing PlantationsThe ProForest Toolkit 90approach to assessing HCV on existing plantations depends on annual species counts which require a high level of effort by plantation owners. The President of RSPO suggested that something more practical needs to be developed, in partnership with RSPO members. This could be based around identifying different biome types, and then defining indicator species for each biome. Special attention could be given to biomes that provide certain ecosystem services (eg, annual flooding that fertilizes land). The toolkit could include an assessment of the profitability of marginal areas (riparian zones and hillsides), which would build the business case for creating biodiversity set-asides. This assessment could also investigate and develop metrics for the value of the ecosystem services that biodiversity set-asides provide to the farm or to other stakeholders (e.g., flood control from riparian zones).
BACP will investigate the value and feasibility of developing a simple and practical Biodiversity assessment toolkit, and, if appropriate, support the development of such a toolkit. BACP will also support an analysis of the profitability of farming in marginal areas such as riparian zones and hillsides. Finally, via its M&E Unit, BACP will work on comparing the use of HCV and possibly other means of impact evaluation and their links to the market.
3.3 SmallholdersOil palm mills have a symbiotic relationship with surrounding smallholders: the mills depend on the smallholders’ production for their economic viability, and the smallholders, for reasons of geography and perishability are captive sellers to the mill. The mills are therefore in a position to work with smallholders to help them improve their faming practices. Smallholders in Indonesia are generally only about 70% as productive as plantations, therefore, there is ample room for efficiency improvements. As many of these improvements involved reduced use of inputs, there is a clear benefit to biodiversity in addition to economic gains.
While BMPs for large-scale plantations are reasonably-well known, smallholders need BMPs that require more labor than capital, and that can be effective on 1-5 hectares; these have not yet been documented. Smallholders therefore lack the knowledge to implement these measures.As part of developing the BACP, IFC identified one potential smallholder project, in partnership with Wilmar, a palm oil producer and client of IFC, and the IFC Linkages Program ( a program around small suppliers).
BACP will participate in RSPO’s smallholder task force, and will support projects that support the adoption of the P&C by smallholders.3.4 Biodiversity training
90 See www.proforest.net. The NGO Proforest, a partner in the RSPO roundtable, has developed a toolkit for use in working groups in standard-setting processes to define High Conservation Values areas and the requirements for their management and monitoring.
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Palm Oil producers generally don’t have biodiversity specialists on staff. Biodiversity training could help producers implement the P&C. The training could address the following topics:- zoning for existing plantations (for example, how to select & manage
biodiversity set-asides)- managing off-site biodiversity impacts (downstream impacts, impacts from
worker housing, etc)- biodiversity impacts of expansion, HCVF assessments- preparation of biodiversity action plans (required to comply with P&C)- biodiversity related M&E techniques.
The training would be for managers of plantations run by RSPO member companies; trainers could include NGOs, local ecologists, and companies actually implementing biodiversity protection. The Malaysian Palm Oil Association (MPOA) and the Indonesian Palm Oil Producers Association (GAPKI) would be potential partners.
BACP will work with RSPO through the newly-established Technical Committee on Biodiversity on establishing a training program on biodiversity, aimed a providing plantation managers with practical tools to implement biodiversity-related provisions of the P&C.
3.5 Testing BMPsBACP will work with large and small producers to test possible BMPs and disseminate results.
4. DEMAND SIDE
4.1 Increase the demand for Sustainable Palm OilCurrently, RSPO members represent about one-third of each of the supply and demand of globally-traded palm oil. At this point, demand for sustainable palm oil is most likely to come from Europe, which represents about 25% of the total demand for palm oil
It is not clear yet what the immediate next steps would be around increasing demand for sustainable palm oil, since IFC works with emerging markets. This will require potential partners to emerge in developing countries. At this point it seems reasonable for BACP to maintain a regular dialogue with RSPO in order to learn what additional work needs to be done on this topic (See section 7.1 for longer term plans).
4.2 Develop traceability mechanisms for Sustainable Palm OilIn a viable market for Sustainable Palm Oil, actors throughout the supply chain will need to be able to document that the product they are trading is indeed Sustainable Palm Oil. To this end, RSPO’s Supply Chain Project has examined three means of trading traceable Sustainable Palm Oil: Segregation; Mass Balance; and Book and Claim. Each approach has it s own merits, and the Roundtable has not endorsed one over another.
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RSPO-verified palm oil is not yet on the market and for the moment it appears that demand is greater than supply, as it will likely take some time for all supplier members of RSPO to comply with the principles and criteria.
BACP will keep watch on issues related to demand for sustainable palm oil and support projects to help select optimal traceability methods from the point of view of biodiversity protection.
4.3 BiofuelsThe demand for palm-oil-based biofuels could have a huge impact on the palm oil industry and on the environment. For example, if the EU requires just 5% of its fossil fuel to be replaced with edible-oil-based biofuel, that would imply nearly tripling its edible oil imports. If this demand were to be met through expansion of palm oil production, land requirements would be greater than all the remaining lowland habitat in Borneo. That said, it is possible to meet the increased in demand through productivity increases and expansion into degraded lands. RSPO has received an increasing number of membership applications from energy companies. It remains to be seen specifically how RSPO will address issues related to biofuels. For the time being, it only reinforces the need for the sustainability P&C and indicators to be applied as soon as possible.
A more detailed discussion of potential demand and supply of biofuels, and of stakeholders’ response, is contained in section 7.3 below.
The issue of biofuels is undoubtedly important to the future of the palm oil industry and to the future of biodiversity in Malaysia and Indonesia. BACP will closely watch this issue.
5. FINANCE
5.1 Need for further researchBACP has gathered information on the role that finance can play in lowering the impact of the palm oil industry on biodiversity. IFC, as well as other financial institutions that are members to the RSPO, are now applying the Code of Conduct which requires them to promote the P&C and develop standards appropriate to their business that cannot be lower than those of the RSPO. Beyond compliance to these standards however –and more importantly to support the engagement of clients in step by step processes until full compliance—rewarding systems are being considered by the IFC via BACP (as also in the IFC/GEF Environmental Business Finance Programme-EBFP). However, further research needs to be done in order for BACP to set its priorities in this area. BACP’s findings to date include:
Palm oil investors are now considering how they can use the RSPO principles and criteria to develop screens to ensure that their investments encourage more sustainable production. By focusing on key biodiversity impacts and by
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ensuring that the associated practices actually break even or bring financial benefits, such investors can be assured that they will not threaten the financial viability of producers. In addition, investors can reduce the risk of their reputation being damaged from involvement with companies that might be accused of unsustainable production.
Most oil palm producers still use the sale of timber and pulp wood to finance the establishment of new plantations. Reducing the upfront costs or delaying the repayment of loans could create incentives for producers to develop systems of rehabilitating degraded lands for production. For example, the increased value in land (developed vs. degraded) might provide an opportunity to cover investment costs. This would require making a credible financial case to lending institutions. It is estimated that in Indonesia alone, a minimum of 6-7 Million ha of degraded land would be suitable for oil palm plantations, although a recent report by the World Bank on forestry options in Indonesia mentions that 24 million ha of totally degraded forests presently in the forest domain should be de-classified.
The overwhelming majority of demand-side actors have not been presented with the business case for insisting that growers and primary processors adopt BMPs. Yet if financiers insisted on the adoption of financially viable BMPs, the producers’ bottom line would benefit. In order for a financial institution or purchaser to understand the financial impact of biodiversity-friendly BMPs and press for their adoption, additional research needs to be undertaken. This research would initially be used to make the case to financial institutions for considering BMPs. Subsequently, it could feed into an investment screening system.
Most international financial institutions active in palm oil have some level of environmental screening, at a minimum they will not invest in projects that explicitly involve expansion into natural habitat. Such Corporate Social Responsibility policies around palm oil are usually the result of pressure from environmental NGOs. In contrast, local financial institutions in general have no environmental screening for palm oil investments.
Existing plantations that have undeveloped concessions that they received prior to 2005 may be wondering how to make the most of this land while still adhering to the P&C. One possibility would be land swaps, perhaps financial institutions could play a role in structuring such swaps.
WWF is undertaking a project entitled “Design and Test Investment Screens to Reduce Biodiversity Impacts and Brand Risks of Bank Investments.” BACP should learn more about the status of this project and about its findings to date.
IFC’s has invested about US$107 million in the palm oil sector, including in Indonesian companies and this figure is growing. There are opportunities for synergies between BACP and IFC’s palm oil sector investment.
RSPO is interested in having more local banks become members. BACP could map out local IFC investee banks which have investments in palm oil, and may approach them about joining with some accompanying technical assistance programme that would help them do so.
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BACP will initially undertake research/feasibility activities leading to defining screening and rewarding practices adapted to the palm oil sector and derivatives. It will later seek to roll-out the results to local financial intermediaries.
6. OUTCOME OF THE SHORT-TERM STRATEGY
It is expected that within 3-5 years, as a result of BACP’s support, plantation owners will be in a position to better understand and manage biodiversity impacts thanks to clearer indicators, verifiers and better defined and documented associated BMPs, and that demand for sustainable palm oil will meet or exceed supply.
7. OTHER
7.1 Discussion of BACP’s long-term StrategyBACP’s longer-term Strategy will of course depend on the outcome of its current Strategy and on market developments. Issues to be addressed in the medium to long term might include:
Demand from China and India. China and India represent about half the demand for globally traded palm oil, and their demand is expected to grow as a result of economic development. For the moment, the Chinese and Indian markets are interested only in minimizing costs, and do not take social or environmental factors into account when they source palm oil. Not much has been done to engage them yet, though COFCO (Chinese importer) is a member of the roundtable. However, there are possibilities for engaging Indian and Chinese purchasers, starting with local subsidiaries of RSPO members (e.g. Unilever or Carrefour). In addition, the Malaysian Palm Oil Association (MPOA) and other members of RSPO have contacts with Indian buyers. In the medium term, BACP might support RSPO in its activities to increase demand for sustainable palm oil.
Coordination with other commodities. Timber and rubber also play a role in deforestation Malaysia and Indonesia. Some sort of outreach from RSPO to other commodities could be valuable in helping these commodities address their own biodiversity impacts. This would fit in with BACP’s long-term goals of replication in other commodities. Such a systemic approach (looking at all the threats to a given ecosystem) is something BACP could keep in mind for the long term.
The success of the Strategy is interlinked with the success of RSPO. Therefore, BACP will support RSPO, to make sure it remains a viable organization.
Specific issues related to biofuels might arise. BACP will track this carefully.
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7.2 Information gapsThere are two main information gaps that need to be further explored. The first concerns Financial Institutions. BACP should find out more about the potential for using financial instruments to support its goals. In particular, financial tools that can help “level the playing field” for establishing plantations on degraded land should receive high priority.
BACP also will also conduct additional research into the policy environment for palm oil (including tax structure), at the national, regional, and local level, in Indonesia and Malaysia.
7.3 Annex: Biofuels discussion
Demand. Biofuel from palm oil is not yet fully competitive with petroleum-based fuel oil. Crude palm oil will have the same price per barrel as heavy fuel oil when oil reaches US$100/barrel. Nevertheless, for reasons of supply diversity and greenhouse gas emissions, the demand for palm-oil-based biofuels is expected to grow significantly in the coming years. To keep things in perspective, it is helpful to point out that the total 2004 world palm oil production could provide fewer than three days per year of global energy demand (fewer than 10 days for all vegetable oils combined).
Nevertheless, demand for palm-oil-based biofuels can have a significant impact on the production. The European Union’s annual edible oil consumption is about 2.3M barrels (equivalent to about 25% of globally traded palm oil); its annual fossil fuel consumption is equivalent to 87M barrels of vegetable oil. So if the EU requires just 5% of its fossil fuel to be replaced with edible-oil-based biofuel, that would imply nearly tripling its edible oil imports. If this demand were to be met through expansion of palm oil production, land requirements would be greater than all the remaining lowland habitat in Borneo.
Current supply. Current production of palm oil is about 30M tons.91 Projected food-related demand by 2050 (date at which world population would be stabilized) is for 50-100M tons. This demand can be met by productivity increases: current average productivity is 3T/ha, best field productivity is 6-7 tons/ha, and best yields in experimental conditions are 9-10T/ha. Oil extraction rates can also be improved, e.g. by 20% in Malaysia. Therefore, it is theoretically possible to meet future demand without expanding into natural habitat.
However, productivity increases mainly come from the use of improved planting material. As trees take 3-5 years to start producing, these increases cannot come on-line quickly. Furthermore, less scrupulous producers are not interested in investing in better planting material. These include companies who obtained a 30-year lease on land, have already made a profit from timber sales, and have planted oil palm in a haphazard way in order to occupy the land for the remainder of the lease period.
91 The information in this section comes from personal communications with Jan-Kees Vis, M.R. Chandran, and Teoh Cheng Hai, May 2006, and from the Consortium Market Survey for Palm Oil.
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On the other hand, six to seven million ha (minimum) of degraded lands in Indonesia, if turned into oil palm plantations, could produce roughly 20 - 40 million additional tons of palm oil, depending on productivity.
Position of stakeholders. Reaction to this demand among palm oil stakeholders varies. The palm oil industry is already gearing up to respond to demand for biofuels. In Malaysia, fifteen companies have begun building biofuels plants, and 34 more are on the waiting list, waiting to receive authorization.
Food companies who purchase palm oil are advocating that policy-makers favor non-food-based biofuels. BP, Shell, and other energy companies are joining RSPO, which suggests that at least part of the biofuel demand might be for sustainable palm oil.
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BACKGROUND INFORMATION FOR THE MARKET TRANSFORMATION STRATEGY FOR PALM OIL92
INTRODUCTION
Purpose of this document This document provides information on biodiversity issues related to palm oil, and on palm oil supply (production), demand, and finance, and on the general enabling environment. This document is intended as background to the BACP Market Transformation Strategy for Palm oil.
BIODIVERSITY IMPACTS
Agronomic fundamentalsMost new oil palm plantings are set up after felling rainforest. Generally there is a close relationship between logging as the first stage of transformation of the landscape, followed by forest conversion to oil palm. Lack of sustainable returns on investments in the timber sector makes it also attractive for the forest-based sector to replant forest areas with palm oil. Planting outside forested land on already opened land will come with additional costs.
Very few companies delimited suitable zones for oil palm groves in their concession, most of them prefer to clear all the forest first. As flat areas were already used, development of oil palm plantations was commonly observed in the 80s and 90s on steep slopes, river banks and peat soils, despite the real difficulties of sustainable exploitation. Fire is used, although it is decreasing, for land clearing to reduce the volume of wood and branches after forest clearance and palm fronds for replanting.
Creeping legume cover crops are used to protect the soil in most of large estates but exceptionally in smallholdings. In the young immature phase, food intercropping is possible but limited to a smallholder scale and during the immature stage (maximum 2 to 3 years). Selected hybrid planting material is commonly used by all the agro-industry and most of smallholders but some of those still used non-selected palms. After one-year nursery stage in polybags, planting is realized at 125 to 160 palms / ha (most plantations, large or small ones, have a density of 140 palms /ha.
The immature stage lasts around 3 years, and then yields increases until the plant is 6 – 8 years old. Replanting is necessary at 20 – 30 years old due to difficulties in harvesting when palms become taller than 12 meters.92 Based on the preparatory work commissioned by IFC to a consortium led by Price Waterhouse Coopers including CIRAD, Wageningen’s Alterra and Plant Research International.
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Soil management is primarily a matter of weeding, given that circle-weeding has to be thorough in order to gather detached fruits (10-15% of total fresh fruit bunch weight) during harvesting; chemical weeding is carried out over a limited area (10%) in large estates while manual weeding is the rule for smallholders. For remaining 90% of the area, as and when palms become older, natural vegetation (with selective eradication of noxious weed) gradually replaces the legume cover crop.
Fertilization (organic and/or mineral) is necessary but its management is certainly not optimum in many cases. Over fertilization in some large company estates and regular under fertilization applications in smallholder schemes are likely to occur. Leaf diagnosis is commonly used to evaluate mineral nutrient requirements, except in smallholder plantations. Rational agricultural recycling of mill waste is still rare.
Pests and diseases are numerous in oil palm plantations; pesticides are commonly used, mainly in large estates, despite Integrated Pest Management (IPM) showing good potential.
Fresh fruit bunches (FFB) are harvested up to 3 – 4 times/month, and transported by trucks or tractors from the plantation to the mill. Processing of FFB must be done within 24 hours of harvesting.
Environmental impacts of production
Forest conversion Forest conversion is one of the greatest issues faced by the oil palm industry, especially in Indonesia with a strong effect of biodiversity reduction in terms of flora and fauna. The biodiversity of lowland rainforests in countries such as Indonesia and Malaysia is among the richest in the world, for which species such as the orang-utan, tiger, elephant and rhinoceros are merely the publicly recognized emblems of an extremely complex biodiversity. Those forest zones are also of considerable ecological, socio-economic and cultural importance for local populations, even when their density per km2 is very small: their degradation or disappearance fundamentally disrupts their way of life.
The responsibility of oil palm development in large-scale deforestation has not been clearly or systematically demonstrated, but it is often the scapegoat. According to IOPRI (Indonesian Oil Palm Research Institute), only 3% of all Indonesian oil palm plantings have been set up after clearing primary forest, as opposed to 63% on secondary forests or fallow. MPOA notes that 66% of oil palm plantations correspond to replanting of rubber or cocoa plantations, the rest coming from forests that were already exploited for their timber. Many large companies specialized in oil palm development are first of all interested in forest exploitation, with subsequent development through oil palm either neglected or delayed (due to lack of funds, etc.).
Burning after clearing Since 1997, burning for land preparation has been banned in Malaysia and Indonesia, with good results in Malaysia, but clearly less so in Indonesia. In June 2002 Indonesia
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even signed an anti-haze treaty with the ASEAN countries, but that does not prevent fires and haze from regularly occurring every year in the dry season.
Extensive cultivation using non-selected planting material Non-selected planting material is offered at a modest price by unscrupulous growers/ traders who settle for recovering seeds or seedlings produced naturally in commercial plantations. Those seedlings clearly do not have the production potential of the hybrid from which they came, merely 30 to 50% of that potential. They are swindling honest farmers (especially smallholders), who are not well informed on the laws of genetic improvement, leading to mediocre oil palm plantations that occupy land for years and which are sometimes responsible for the disappearance of forest. Thousands of hectares of that type have been planted and are still being planted today worldwide.
Erosion Erosion mostly occurs on steep slopes, especially when contour planting is not used. Establishment of a legume cover crop under palms is quite effective for limiting erosion. However, erosion is greatest in the few months corresponding to the rainy season, between land clearing and total soil cover by the legume cover crop.
The rapid expansion of oil palm plantations has often been carried out without taking certain parameters into account though their stakes are enormous in the long term. Planting on steep slopes, even when terraces are constructed along contour lines, is courting serious difficulties: powerful erosion with a loss of fertility potential (organic matter, fertilizer leaching), complicated and tiring access to the palms for routine upkeep and harvesting work (oil palm bunches are very heavy), impossibility of mechanizing a fair number of tasks, complicated manpower management. Protecting such areas where the topography is not particularly favourable, by preserving the existing forest, makes sense, but it is still necessary to get the message systematically across to farmers, and for a minimum of surveillance and sanctions to exist.
Inadequate pesticide spraying Despite efforts to establish IPM techniques, when they exist and are known, inefficient pesticide spraying is regularly reported. Pollution from insecticides and herbicides (Paraquat) can be locally significant and their effects might reduce insect diversity, biodiversity in general, and affect food-chain, not to mention the risks to staff in direct and repeated contact with these products, when protective methods are either nonexistent or poorly used.
Mill effluent and empty fruit bunches (EFB)Special attention has to be paid to effluents, which amount 3 to 3.5 times the crude palm oil (CPO) production volume. With almost 700 large-scale oil mills in Malaysia (368) and Indonesia (more than 300), waste and by-product issues are of tremendous importance in terms of biodiversity and environmental impacts: river pollution is very common despite standard methods to avoid such environmental disasters, which are responsible for a substantial reduction in biodiversity (fish, etc.).
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The conventional way of treating effluents consists in installing a lagooning system enabling effluent digestion by an anaerobic phase followed by an aerobic phase to reduce the biological oxygen demand to less than 50 ppm, so that the purified effluents can be discharged into the wild without any risk of pollution. It should be noted that the anaerobic phase produces methane gas whose greenhouse gas effect is 20 times greater than CO2.
EFB, whose weight on leaving the oil mill is at least equivalent to that of CPO produced, were conventionally burned in incinerators, in order to substantially reduce the volume and weight (5%), recovering the ashes rich in fertilizing elements (P, K, Mg, trace elements) for use in place of commercial mineral fertilizers. That system is now banned, but only for new oil mills. There are therefore still numerous oil mills that continue to incinerate their EFB, resulting in: air pollution with the discharge of CO2 and solid particles, and the total disappearance of organic matter though it is necessary for sustainable fertility in oil palm plantations. It can be understood that this type of EFB treatment persists because it offers the advantage of being cheap (low investment, ash transport and handling) compared to more environment-friendly methods.
In the Palm Oil production chain there is an overall surplus of by-products and the utilisation rate of these by-products is low, as is especially the case for effluent and empty fruit bunches. For other mill by-products the efficiency of the application can clearly be increased. For field residues the main utilisation now is disposal as mulch and fertiliser. The efficiency and effectiveness of such measures is still unclear.
Better Management Practices and the associated business case
Limitation of forest conversion In the competition between soybean and oil palm cultivation, one advantage of oil palm is the tremendously high yields per ha, making it possible to achieve the same present production 30 MT from 8.5 million hectares as opposed to 90 million for soybean. In other words, the global oil palm area is relatively limited and it should be theoretically possible to strictly limit the negative effect of forest conversion. In Indonesia and other countries (Brazil …) large degraded areas are available (transmigration project during the 80s, area burnt in 97-98, etc.) and might be converted in oil palm cultivation.
Ecological and human zoning is necessary for medium- and long-term extensions. Areas identified as a critical habitat for endangered species and areas of exceptional biodiversity need protection. Any conversion strategy to address the expansion of oil palm plantations will require initial mapping of new plantations and of critical habitats. If zoning and cultivation of the most suitable soils are carried out on two scales, region and large estate concession, it may be possible to preserve large biodiversity reserves and corridors inside each oil palm estate. But sizes of reserves and corridors depend on the biodiversity to be saved.
Since the beginning of the 20th century, some companies have acquired good knowledge of the optimum conditions for oil palm cultivation (lack of water deficit, good deep soil,
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as flat as possible, and no strong acidity, avoiding acid sulphate and peat soils). Macro-zoning, followed by micro-zoning in each concession should make it possible to eliminate steep slopes and unsuitable terrain, which will be used as corridors for maintaining biodiversity (flora and fauna). These integrated establishment criteria are already taken into account by some companies, banks and NGOs (Unilever, SIAT/WWF/ MIGROS, Rabobank).
The great difficulty at the moment lies in a probable lack of coherence between the criteria used to attribute the concessions already attributed (maybe 4 Mha in Indonesia) and those that would effectively be guided by the "conscientious" preservation of biodiversity (compromise between fierce protection of such biodiversity and the need for development). Questioning the concessions already attributed would raise political difficulties that can easily be imagined. In addition, an inventory of degraded areas, with an evaluation of the degree of degradation, might facilitate their conversion into oil palm plantations if incentive schemes were available.
Business case. Zoning inside the concession, keeping some areas (steep slopes, etc.) free of conversion as corridors or biodiversity sinks, has two economic consequences: in order to achieve the same total planted area, the overall concession has to be larger, with higher transportation costs; as the soils and topography of the planted area is more suitable, average yields will be higher and exploitation costs lower, easily compensating for the first negative effect.
The cost of land preparation using degraded lands rather than forest conversion is difficult to estimate on average: logging in the forest conversion process is a profitable business paying for part of the land preparation, while land preparation itself for degraded land is usually cheap. In the long term, the level of fertility would be higher when starting from virgin forest.
Zero-burning after clearing Zero-burning (new planting or replanting) will facilitate the conservation of flora and fauna species and prevent fires from spreading outside the area in question. Planting can be carried out immediately after windrowing, without waiting for the wood to dry. The vegetation (wood, branches after forest clearing; stems, frond for replanting) decays more slowly, keeping mineral nutrients available as the palms become mature.
Business case. The zero-burning technique is reported to be cheaper than traditional methods. Planting can be carried out immediately after windrowing saving time and money.
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Improvement of planting material potential Informed farmers are well aware of how important it is to plant high-yielding material: high FFB yields and extraction rate, resistance to lethal diseases, oil quality, etc. It is a way of producing more on a limited area whilst reducing unit production costs.
However, the development of the oil palm commodity chain in Malaysia shows that yields, be it FFB/ha or CPO/ha, have barely changed for the last 30 years in national average terms despite the steady progress made in genetic improvement research.
Business case: The oil extraction rate (OER) does not reach 20%, as opposed to 23 to 25% in the best companies worldwide on tens of thousands of hectares: that difference, for OER alone, would appear to amount to almost 3 Mt missing compared to the 14 Mt actually extracted. Neither is it normal for FFB production to plateau at 18 t FFB/ha when large-scale plantations regularly report yields exceeding 30 t. The reasons for such stagnation are generally claimed to be the increasing difficulties encountered with labour management (scarcity, cost, work quality), especially for top quality harvesting (unripe bunches, not all loose fruits recovered, production losses in hilly areas, etc.), and declining quality in the large extensions planted in recent decades compared to the level of the initial plantations (soil quality, topography, water deficit, etc.). This nonetheless proves that major room for manoeuvre exists for intensification that would make it possible to produce much more per ha.
Erosion control, drainageEstablishment of legume cover crops has many positive effects, such as erosion and compaction limitation, biological nitrogen fixation, control of noxious weeds, such as Imperata, Mikania, etc., production of organic matter, buffer effect of soil temperature and microorganism development, etc. This conventional practice needs to be applied by maximum number of oil palm planters even though the cost of upkeep is significant. Research needs to be conducted on the introduction of new legume cover crops. It would seem to be utopian to mix agroforestry with oil palm, reducing the density of the latter, except in smallholdings (oil palms and cocoa, orange groves, etc.).
Although it is expensive to set up mechanically constructed terraces in a hilly topography, they are essential from the moment it has been decided to plant under such conditions.
Likewise, plantations set up on peat soils require highly technical complex drainage that enables adjustments between the dry season (preventing the peat from drying out deep down) and the rainy season (excess water): these are fragile environments, especially peat soils deeper than 2 metres. Such soils should be protected in their natural state (with the vegetation), instead of irreversibly degrading them, especially if the technical aspects have not been tried and tested.
Business case: in order to reduce FFB transportation when oil palm plantation is not compact (large corridors, fauna reserves, etc.), the idea is to establish smaller mills whose capacities are adapted to each plantation unit. This is indeed a possibility, but the
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investment and maintenance costs per unit of mill capacity are somewhat higher when the capacity is low, not to mention the larger number of qualified staff required.
Rational use of fertilizers and pesticidesFertilizers. Generally the management of oil palm fertilization is well known in large scale plantations with competent management staff. But fertilization might also be one of the main yield limiting factors and a common practice in many companies is to apply more fertilizer than necessary to avoid all kind of deficiencies.
More communication and more rigorous research are necessary to combine the best methods, with two main objectives: high yields at lower cost and fewer negative environmental impacts. Any techniques that reduce surface runoff will limit nutrient leaching, and therefore contamination. Indicators on the environmental impacts of fertilizers should be determined and set in place. Estimates of nutrient requirements depending on the type of planting material, soil class, climatic conditions, combined with environmental impacts, need to be more accurate using specific trials and analyses. Soil fertility should be monitored in order to confirm appropriate fertilizer practices.
The quantities and types of nitrogen and phosphorus fertilizers need to be particularly studied as it is they that can be responsible for water and air pollution: the main problem, especially for nitrogen fertilizers, is the risk of rapid leaching of those elements by heavy rainfall, even though such rainfall dilutes them, thereby reducing their impact on the environment.
Many smallholders cannot afford to buy fertilizers because they cannot access credit.
Business case: Better management of fertilizer policy presupposes a strong relationship between growers and scientists, in order to integrate all the bibliographical data already accumulated with the new requirements. The additional cost should be normally compensated for by fertilizer savings or extra yields.
IPM. The introduction of barn owls in the 90s in Malaysia and Indonesia in large oil palm estates to control rat outbreaks without pesticide is a good example of IPM progress. Similarly, the control of Oryctes beetles, a dangerous pest when replanting young palms, started in the 70s with legume cover crops covering the old stems serving as larva sites. Now, more sophisticated methods are being studied with specific olfactory pheromonal trapping.
There has been substantial research and development work on the use of specific entomoviruses; it is a particularly interesting biological control method that is extremely environment-friendly. Introducing pest parasites is another way of controlling the main pests which ought to be stepped up. More research is necessary to standardize the best systems in order to limit pesticide use.
Business case: IPM techniques with biological control require staff training and inputs compensated for by insecticide savings.
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Management of mill effluents and by-productsRecycling of empty fruit bunches (EFB) and POME (palm oil mill effluents) directly in the field, or after composting, has been amply studied by several large companies in order to maximize its use: the challenge is now to scale up these techniques.
It has been seen that recycling EFB by transporting them back to the field in their natural state offered the advantage of not losing any organic matter, but it was expensive and difficult to organize in terms of transport and spreading. The most worthwhile formula is probably composting, dividing EFB volume by 5, but the aim is to produce such compost on a routine basis, at a lower cost, and of higher quality (without loss of the original mineral nutrients).
For POME recycling systems involving the lagooning system, the major drawback, even when it is well managed, is pollution by methane, a powerful greenhouse gas. There are ways of using tarpaulins to capture and use the methane, but it still needs to be used in the best possible way directly on site, and industrial oil mills are already largely self-sufficient in energy.
Business case: Regulations about oil mill waste management exist in the major producer countries, but it is not certain that all companies are completely in compliance with the rules. Recycling requires good company organization and quite heavy investments: tractors and specific trailers, special equipment for composting, etc. Companies have to equip themselves progressively, using the methods already effectively adapted by the first pioneering companies. Most of the techniques are already performing well, but are not yet used by the majority.
SUPPLY-SIDE
Planted AreaAs shown in Table 6, the total area planted with palm oil is over 10 million hectares in 2004, of which 8.5 million hectares in production, which represent a 27% increase during the last 5 years.
Table 6: Global mature planted area for palm oil
2004 (000 ha) Malaysia Indonesia Nigeria Thailand Colombia
Mature area 3 410 3 320 367 270 160
Share 40% 39% 4% 3% 2%
Malaysia and Indonesia concentrate most of the planted areas as each of them shares almost 40% of the total area. But the growth in Indonesia is almost 10% a year, when it is only around 5% in Malaysia. Developments are also observed in other Asian countries, in Africa and Latin America, but to a much lower extent, as expansion only represent a few thousands hectares a year in these countries. Future growth will come from Indonesia
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with a potential of about 10 million hectares suitable for oil palm of the 13.6 million hectares that the Indonesian government has allowed for conversion.
Structure of ProductionOil palm is essentially grown on estates as smallholders represent less than 1/3 of the planted area. In Malaysia, private estates represent 60% of the total, government schemes 30% and smallholders 10%. In Indonesia, percentages are respectively 51% for private estates, 33% for smallholders and 16% for public estates. Smallholders are often associated with estates as they must sell their fruit bunches to a plantation mill. They are known as “plasma” in Indonesia. One third of private estates in Indonesia are owned by foreign companies, especially from Malaysia.
Palm oil production grew rapidly, rising from 6 million MT in 1984 to 30 million MT in 2004; palm kernel oil rose from 0.8 million MT in to 3.6 million MT in 2004. This represents almost 1/3 of the total vegetable oils produced in the world.
Table 7 shows that over 85% of the palm oil production comes from Malaysia and Indonesia; other significant palm oil producers are Nigeria, Thailand, and Colombia, all above 0.5 million MT.
Table 7: Global palm oil production
2004 (000 t) Malaysia Indonesia Nigeria Thailand Colombia
Prod. Palm oil 13 974 12 080 790 668 632
Share 46% 39% 3% 2% 2%
Prod. P. kernel oil 1643 1 257 205 63 57
Share 46% 35% 6% 2% 2%
Between 2001 and 2005 (estimates), the production increase is significant in all these countries except Nigeria (annex 2.1). It reaches an average 12% a year for Indonesia, with a world production increase of 8% a year, but only 6% for Malaysia.
Yields The average yield is 3.6 tons of oil per hectare. Malaysia, PNG and Colombia produce nearly 4 tons per hectare, when other countries are around 2 tons per hectare. The proportion of smallholders, the quality of planting material, climatic conditions and the management performances are the main factors influencing yield. It could be observed that yields did not improve a lot these last years and could not explain the production increase essentially due to an increase in planted areas. But yield potential is high (9 tons per hectare obtained in good conditions) and productivity improvements are possible in many plantations in several countries. Oil Extraction Rate (OER = oil recovered/Fresh Fruit Bunches processed x 100) is now being used by many companies and producers to improve their performances.
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Value of ProductionAn overall and rough estimated value for 2004 (production x price) comes to 15 billion US$, with respectively 6.6 and 5.7 billion US$ for Malaysia and Indonesia. For most producing countries, this value almost doubled since 2000, even more for Indonesia. But this value, estimated for crude palm oil, is largely underestimated as several producing countries now produce (and export) refined and processed products with added value. In Malaysia, there are 48 refineries in operation, with a capacity of 16.7 million tons, and a potential of almost more 4 million tons with 5 refineries not in operation and 10 others under planning.
International supply trendsGiven the present distribution of production, Malaysia and especially Indonesia will continue to play the most important role in palm oil developments.
Malaysia is currently the dominant palm oil producer; but it has a limited land base, higher costs of production and is also plagued by frequent shortage of plantation labour. Malaysia’s future relies upon a strong focus on improving yields. They have established two replanting incentive schemes for estates owners and smallholders (2001 and 2003), and the 3025 program of the Malaysians for palm (30 mt of FFB with 25% oil extraction rate) compared to the current average 1920 (19 mt of FFB with 20% OER).
Indonesia has a large potential area for oil palm. According to IOPRI, 9.7 million hectares are suitable for oil palm planting, of the 13.6 million hectares of forest land that the Indonesian government has allowed for conversion. Labour is available and cheap in the country, and technical innovations leading to yield increases could easily be adopted by many well managed companies and spread to others. The main problem faced by the country is land conversion, with strong and recurring attacks from NGOs pressing to keep HCVF untouched.
Many other countries plan to expand their oil palm areas, in Asia, Africa and Latin America, but, given the huge gap in production between Malaysia and Indonesia and the rest of the world, it is unlikely that expansion in all these countries lead to new dominant players.
Supply of sustainable palm oilCurrent supply of sustainable palm oil is insignificant and includes about 100,000 tons produced according to the Migros Criteria, and purchased by the Swiss retailer Migros93. The Migros Criteria preceded the RSPO P&C94.
RSPO’s members among palm oil producers represent at least one-third of globally traded supply, or 10M tons of palm oil. Therefore, once the P&C are operational (within 1-2 years) and members have had a chance to fully implement them (an additional 1-2 years) one might expect the supply of sustainable palm oil to be at least 10M tons.
93 Equivalent to the “mass balance” traceability system, one of the 3 systems currently envisaged by RSPO (the other two are “book and claim” and total segregation)94 Some palm oil producers also produce fully segregated organic oil (for example GOPDC in Ghana)
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DEMAND-SIDE
Palm oil products and their usesPalm oil is used in the manufacturing of many foodstuffs, but also in a great number of technical applications, as can be seen in Table 8. Palm oil is seen largely as a general-purpose oil, which means that, for many uses, it is interchangeable with other oils, particularly soybean and rapeseed (canola).
Its specific characteristics provide palm oil with some comparative advantages in food applications, such as: i) one of the best frying oils, since it is resistant to high temperatures and does not produce unpleasant odours; ii) resistance to oxidation, which contributes towards a longer shelf life for the end products; iii) suited as an ingredient in shortenings and margarines; iv) easy combination with harder fractions such as palm stearin to produce products of the required consistency without hydrogenation; etc.
Except in Africa, palm oil is not often retailed as a product in its own right. As one element amongst many in such end-products, it is concealed, which limits public awareness and ability to identify products using palm oil.
Table 8: Food and non-food uses of palm oil
Food uses Non-food uses Cooking oil Deep frying oils Margarines and spreads Bakery fats (shortenings) Cocoa butter alternative fats Confectionary fats Ice cream fats Infant nutrition fats Other food applications
Cosmetics and personal care Soaps Candles Pharmaceuticals Lubricants and Grease Surfactants Industrial Chemicals Agrochemicals Coatings Paints and lacquers Electronics Leather Biodiesel
Market structure and major market players
Palm oil production chainThe palm oil production chain is illustrated in Figure 1 below. It is characterized by the large number of end-users spread across many different industry sections.
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Figure 2: Overview of the palm oil production chain
Main actors by category of stakeholders
The main actors and stakeholders for palm oil are shown below.
Producers, first transformation (Crude palm oil), and crushers:
Malaysia: Golden Hope, Guthries, Felda, Sime Darby, EPA, United Plantations, IOI, AAR, Kuala Lumpur Kepong, Kulim, TH Plantations, Asiatic Development, Consolidated Plantations …
Indonesia: PTPN II, IV, Salim, Smart, Asian Agro Lestari, Benua Indah, Agro Indomas, London Sumatra, Socfindo, Sipef, Guthries, Incasi Raya & Metro, Johor, Rajah Garuda Mas, Suria Dumai, Tirtamas and Maharani, Lyman, …
InvestmentsInputs
Source: FOE “Greasy palms: European buyers of Indonesian palm oil,” as cited in BACP Market Survey for Palm Oil.
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Refiners: Cargill, Aarhus, Felda, Akzo & Pacific Oleochemical, Unilever, Cognis, Unitata, Harrisons & Crossfield, Henkel Oleochemicals, Palm Oleo, Pan-Century, ADM, Oleochemicals, Uniquema, Wilmar …
Seed producers: Malaysia: Felda, Golden Hope, Guthries, United Plantations, AAR Indonesia : IOPRI, Socfindo, London Sumatra, Agro Indomas, Smart Others: NBPOL (PNG), ASD (Costa Rica), CIRAD (France)
Financial institutions: Rabobank, HSBC, UBS, IFC.
NGOs: WWF, Oxfam, Sawit Watch, Greenpeace, Global Environment Center, Friends of the Earth, Environmental Investigation Agency, World Rainforest Movement Plantations Campaign, Birdlife International, Rainforest Action Network ‘Stop Citigroup’ Campaign, Global Response ‘Stop Financing Destruction in Indonesia’
Market trends
GeneralThe market potential for oils and fats looks good in the future, considering the rapid increases in consumption. But palm oil is but one among several other major oils and fats produced and traded in the world; main substitutes are soybean, canola, and sunflower oils. As most of the oils are inter-substitutable, they are engaged in a tough competition, though palm oil is among the leaders. Palm oil represents 55.5% of the world exports for vegetable oils and 51% for the total oils and fats while the production is respectively 28.3% and 23.4%.
The growth of the oil palm sector was spectacular during the last decades, in terms of planted areas and palm oil production, especially in Malaysia and Indonesia. This is largely due to the palm oil’s comparative advantages but these are constantly challenged by prices fluctuations, technical innovations in other oils and fats, tariffs and taxes and consumers concerns on health, environment and food security.
Unless many other commodities, where the final products are easily identified with the primary commodity (banana, coffee, cocoa, etc.), the range of processed products issued from palm oil is very large. Used in food and non-food products the palm oil content varies from 100% in edible and cooking palm oil for instance, to very small quantities in products without a visible link to oils and fats (cosmetics, pharmaceuticals, chemistry, etc.).
All experts agree to forecast a significant increase in oils and fats demand in the future. In the past 30 years, the average world growth rate was around 3%, with a per capita
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consumption which almost doubled from 11 kg in 1976 to 20.5 kg presently. With a population increase estimate close to 10 billion people in 2050, the demand will reach more than 200 million tons if the per capita consumption remains stable. Oil World expects the per capita consumption to grow also and by 2020 reach 25kg, due to better standard of living in many developing countries, which lead to 250 million tons at the time when the population reaches 10 billion people.
But the Chinese per capita growth rate for vegetable oil consumption has been over 8% for the last 10 years, and India is catching up fast, with growth rates similar to China in the 1990s. This means that the above figures ( a need to double oils and fats production in the next decades) are possibly underestimates, just considering current uses of oils and fats (without a big impact of biofuels).
Therefore, as demand for palm oil will double in the next decades, the supply sector is faced with an extraordinary challenge, at a time of high pressure from many NGOs on land preservation and the use of biotechnologies.
Exports and importsExports. In 2004, palm oil exports represented almost 79% of the total produced, in constant increase during the last years from 69% in 2000. Malaysia (52%) and Indonesia (37%) share almost 90% of the palm oil exports. The volumes exported showed a 60% increase at the world level from 2000 to 2004, with only 37% in Malaysia but more than 110% in Indonesia.
The total value of oil palm products exported by Malaysia in 2004 is estimated close to 8 billion US$.In Indonesia, processed palm oil exports represent 60% of the total. Both Malaysia and Indonesia have export duties on palm oil exports, especially on crude palm oil, to protect the domestic market of cooking oil in Indonesia, and to boost added value products exports in Malaysia.
Imports. More than 150 countries import significant amounts of palm oil, but Europe (17%), China (16%) and India (14%) are the major players. Imports were relatively steady in India during the last five years, but showed significant increases in Europe (+ 60%), China (+ 118%) and especially Malaysia (+949%), which became also a substantial importer. In 2004, most palm oil was imported as processed palm oil, but some manufacturers reprocess palm oil at arrival.
Prices
Palm oil prices recovered from a low in 2001. Production costs vary greatly from country to country: Indonesia has the lowest, Africa the highest. Labour costs are much higher for palm oil than for soybean, for example. With production costs estimates around 200 US$/MT (much less for the best managed companies) the palm oil sector still remain a
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very profitable business today. Palm oil futures have been traded on the Kuala Lumpur Commodity Exchange (KLCE) since 1980.
Table 9: Palm oil prices, 2000-2004
2000 2001 2002 2003 2004
Price of Crude Palm oilUS$ / MT World Bank
310.3 285.7 390.3 443.3 475.6
Demand for biodiversity-friendly palm oilThe current demand for biodiversity-friendly palm oil is small but poised to grow very fast. As of early 2006, RSPO members represented about 5% of demand for globally traded palm oil, but this figure is now an underestimate: about 50 organizations have since joined RSPO, some of whom will have a big impact on demand. Members of RSPO now include large retail chains (e.g., Carrefour, Ikea), food manufacturers (e.g., Unilever, H J Heinz), soap, cosmetic and wax manufacturers (e.g., Johnson and Johnson, L’Oreal), and energy companies (e.g., BP), who are interested in palm-oil based biofuels. At the Nov 2006 meeting of the RSPO, it was clear that new demand-side members are impatient for sustainable palm oil to reach the market.
Industry insiders do not expect sustainable palm oil to cost significantly more (if even, much more at all) than “ordinary” palm oil, and therefore, they expect demand to meet supply. Nevertheless, if the RSPO P&C are to have a wide impact on the industry, demand should be at such a level as to stimulate new supply, beyond the volumes produced by RSPO members.
Palm oil produced according to the RSPO P&C will be indistinguishable from “less sustainable” palm oil in terms of intrinsic quality. It will have the same properties, and won’t be identifiable. An RSPO Verification Working Group is investigating ways to verify adherence to the RSPO P&C, and to certify production and supply chain, so as to be able to guarantee to purchasers that they are buying sustainably-produced oil. An RSPO Supply Chain Project has determined that the main options for traceing sustainable palm oil (segregation, mass balance, and tradeable permits or certificates) each have pros and cons; as they can each co-exist in the market, RSPO has not favored one method over another yet.
BiofuelsDemand. Biofuel from palm oil is not yet fully competitive with petroleum-based fuel oil. Crude palm oil will have the same price per barrel as heavy fuel oil when oil reaches US$100/barrel. Nevertheless, for reasons of supply diversity and greenhouse gas emissions, the demand for palm-oil-based biofuels is expected to grow significantly in the coming years. To keep things in perspective, it is helpful to point out that palm oil
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will never be a real substitute for crude oil: the total 2004 world palm oil production could provide fewer than three days per year of global energy demand (fewer than 10 days for all vegetable oils combined).
Nevertheless, demand for palm-oil-based biofuels can have a significant impact on the production. The European Union’s annual edible oil consumption is about 2.3M barrels (equivalent to about 25% of globally traded palm oil); its annual fossil fuel consumption is equivalent to 87M barrels of vegetable oil. So if the EU requires just 5% of its fossil fuel to be replaced with edible-oil-based biofuel, that would imply nearly tripling its edible oil imports. If this demand were to be met through expansion, land requirements would be greater than all the remaining lowland habitat in Borneo.
Current supply. Current production of palm oil is about 30M tons.95 Projected food-related demand by 2050 (date at which world population would be stabilized) is for 50-100M tons. This demand can be met by productivity increases: current average productivity is 3T/ha, best field productivity is 6-7 tons/ha, and best yields in experimental conditions are 9-10T/ha. Oil extraction rates can also be improved, e.g. by 20% in Malaysia. Therefore, it is theoretically possible to meet future demand without expanding into natural habitat.
However, productivity increases mainly come from the use of improved planting material. As trees take 3-5 years to start producing, these increases cannot come on-line quickly. Furthermore, less scrupulous producers are not interested in investing in better planting material. These include companies who obtained a 30-year lease on land, have already made a profit from timber sales, and have planted oil palm in a haphazard way in order to occupy the land for the remainder of the lease period.
On the other hand, the six to seven million ha of degraded lands in Indonesia, if turned into oil palm plantations, could produce roughly 20 - 40 million additional tons of palm oil, depending on productivity.
Position of stakeholders. Reaction to this demand among palm oil stakeholders varies. The palm oil industry is already gearing up to respond to demand for biofuels. In Malaysia, fifteen companies have begun building biofuels plants, and 34 more are on the waiting list, waiting to receive authorization.
Food companies who purchase palm oil are advocating that policy-makers favor non-food-based biofuels. BP, Shell, and other energy companies are joining RSPO, which suggests that at least part of the biofuel demand might be for sustainable palm oil.
95 The information in this section comes from personal communications with Jan-Kees Vis, M.R. Chandran, and Teoh Cheng Hai, May 2006, and from IFC internal documents.
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FINANCE
Finance currently available
Leading international banks have developed environmental and social policies and screening procedures to ensure that environmental and social consideration are taken into account in their lending and investment decisions96. However, most banks’ policies and procedures do not take into account industry-specific risks linked to biodiversity, such as reputational risk associated with expansion of palm oil into orang-utan habitat. WWF Indonesia, a founding member of RSPO, working with seven banks and the Indonesian NGO Sawit Watch, has initiated informal consultation between banks and NGOs to identify biodiversity conservation opportunities in the screening of recent loans. Stakeholders involved in this process have provided input to a new Bank Indonesia regulation requiring Indonesian banks to assess environmental measures taken by clients when rating the quality of their loans.
The environmental Principles and Criteria (P&C) adopted by the Roundtable on Sustainable Palm Oil (RSPO) are not currently used as screens for investment proposals. The integration of these criteria and their national interpretations into individual bank policies remains a challenge for banks.
While general guidance on environmental and social investment screens is available, most banks lack tools to apply them in practice. Effective, cost-effective, and yet robust risk screening and monitoring procedures that take into account the specificities of the palm oil sector are not readily available. Moreover, a large number of banks investing in the palm oil sector, in particular local banks in Malaysia and Indonesia, lack awareness, expertise and capacity (e.g., absence of environmental officers) to develop and implement appropriate in-house screening procedures. At implementation, BACP will conduct further research into the specific institutional, financial, and cultural barriers that prevent Indonesian and Malaysian banks from taking biodiversity into account in their palm oil lending practices.
New financial tools and practicesThe above-mentioned WWF project proposes to produce a Handbook for credit officers on the screening and monitoring of projects in the oil palm sector, including (a) a model bank risk assessment policy for the oil palm sector, (b) briefing notes on sector risk, (c) a streamlined screening and risk management procedure, including model loan contract, covenants and client monitoring procedures, (d) country-specific definitions and guidance on the interpretation of RSPO criteria as well as (e) recommended standard approach to complaints.
If investment screens effectively and consistently incorporate biodiversity preservation opportunities, they become a powerful tool to channel investments towards “better” rather than irresponsible practices. Such investment screens can influence investment
96 In particular IFC followed by all the Equator Banks.
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decisions, increase the credibility and impact of the RSPO P&C and influence palm oil companies’ land development decisions.
ENABLING ENVIRONMENT
Government policies
General. In the course of program development, IFC sought to commission a study on national and local policies and regulations that posed barriers to the development of sustainable palm oil. It proved difficult to obtain comprehensive information. Indeed, even the RSPO itself has not yet compiled such information (they did express great interest in hearing IFC’s findings). The information provided below is therefore preliminary, and will be the focus of further research during implementation.
Indonesia. The accelerated degradation and/or disappearance of forests can easily be explained through the mechanisms by which concessions are attributed, and the many ways of getting around laws and decrees. Although it is the government authorities who grant operating licences, it is clear that numerous illegal practices (e.g. Indonesia) are settled in two ways: either the authorities turn a blind eye, subject to some compensatory corruption, or they launch endless procedures that also entail corruption at different levels. To gain access to a plantation licence, the following procedure has to be followed: approval by the Department of Plantations, authorization by the District Governor (Location Permit), authorization by the Department of Forestry which issues the HGU. An EIA (Environmental Impact Assessment) is also needed for estates (as soon as the area exceeds 500 ha). The involvement of the District authorities is relatively new: this decentralization does not speed things up, quite the opposite. Due to long and complicated formalities, some not particularly scrupulous companies often skip stages and start land clearance before the complete application has been approved.
In addition, the local authorities have a tendency to encourage oil palm development in their constituency, since everyone can have financial gain from it. According to IOPRI, 18 Mha would appear to be suitable for oil palm growing in Indonesia; since 1992, new concessions amounting to at least 8 Mha (of which 2.8 Mha in Irian Jaya) have apparently been attributed, but a very small proportion of that area has apparently been converted already since, today, only around 4 Mha of oil palm plantings exist in Indonesia.
In the attribution of concessions, the prime question is: On what criteria is the choice of sites based? Although quite rough soil maps exist, maps taking into account natural biodiversity for selecting lands with HCVs (High Conservation Value) only exist for very limited areas and do not claim to cover the whole country. Remote sensing images are not accurate enough to give that type of information. Without going too far, it can be said that there is not really any overall plan on a national scale that provides a picture of what the degree of forest conversion will be in the next 20 to 30 years, and whether the preserved
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zones will really be selected for their biodiversity of a specific richness. The lack of coordination between different State services in charge of attributing concessions, and the corruption methods used, are encouraging a headlong pursuit that is hardly propitious to rational planning.
Payments for Ecosystem Services. Conservation areas that are set aside in palm oil concessions provide ecosystem services including biodiversity protection and carbon sequestration. However, the benefits of these ecosystem services go to the national and global community, while the opportunity costs of taking land out of production fall on the producers. Payments for ecosystem services (PES) could provide incentives for keeping sensitive lands out of palm oil production and to reduce chemical usage. Such payment systems are increasingly advocated by international organizations as a way to make financial transfers from the beneficiaries of the services to those who provide them. While the Indonesian government is unlikely to fund PES from its own limited treasury, international sources of conservation funding may become available through biodiversity offset and carbon payment initiatives.97
Gap Analysis. During implementation, BACP will explore further the issue of policy-related barriers to biodiversity friendly production of palm oil; so as to find the best way the Program can engage with policymakers in order to support the adoption of BMPs.
Other industry groupsIn addition to the RSPO, other industry groups with whom BACP has had initial discussions include the Malaysian Palm Oil Association (MPOA), the Malaysian Federal Land Development Agency (FELDA, the largest producer of palm oil in Malaysia), and the Indonesian Palm Oil Producers Association (GAPKI). Both MPOA and GAPKI have sent letters of intent to collaborate in BACP.
Other Sustainability Initiatives of Interest
Migros criteria for oil palm plantations: between Migros (Switzerland) WWF Switzerland, SIAT (Belgium/Nigeria/Ghana/Gabon) and CIRAD (France) - February 2002
Migros, largest supermarket chain in Switzerland, has a strong commitment to high standards of environmental and social management. In co-operation with WWF Switzerland, Migros developed its Criteria for Oil palm plantations. The criteria widely cover technical, environmental, social and economic issues, but also provide guidance for interpretation at the local level (usually referring to local best management practice guidelines). An audit of expert team is commissioned with inputs invited from interested parties including environmental
97 K. ten Kate, J. Bishop, and R. Bayon, “Biodiversity Offsets: Views, Experience, and the Business Case,” IUCN, Gland, Switzerland, 2004.
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and social NGOs, local and national government, and industry representatives. The Migros Criteria require a chain of custody mechanism (e.g. including organic certification) to ensure palm oil comes from the identified plantation.
Financial services to oil palm plantation companies: proposed screening of potential clients by financial institutions (4 Dutch banks) – 2001
In 2001, four major Dutch commercial banks – ABN AMRO bank, Rabobank, ING Bank and Fortis Bank – decided to stop or restrict new financing of oil palm plantations in Indonesia unless the client adheres to set of 4 basic principles: not to be involved in burning forestland, not to clear tropical rainforest, to respect the rights and wishes of local communities, to respect Indonesia’s law and relevant international conventions. In 2002, AIDEnvironment and Profundo elaborated these 4 principles through a series of criteria for screening potential clients by financial institutions.
Malaysian Palm Oil Association proposed sustainable environmental charter: MPOA (Malaysia) – December 2003
The MPOA declaration: to care the well being of environment, to protect and conserve them for future generations, to strive to maintain good balance between environmental conservation and business objectives, to use natural resources in an ecologically manner.
Guidelines to Better Management Practices (BMP): MPOA (Malaysia) - 2004
Project objectives : a) identify BMP projects, pilots or initiatives that can be carried out with stakeholders, b) highlight significant on-going industry or MPOA initiatives that are contributing to the RSPO objectives and identify areas for further collaboration, assistance or where resource inputs are needed, c) put forth the role that MPOA can play in generating closer collaboration between stakeholders and industry members for developing BMP projects, and d) identify and highlight the resource or other needs for these initiatives to continue or start.
Introductory oil palm IPM discovery learning manual: CAB International – 2004
Comprehensive ecological guides and discovery learning exercise manual are in high demand. Preparation of an introductory oil palm manual with pest datasheets and producer participatory exercises.
Investigating indicators on sustainable palm oil production to protect and enhance biodiversity in oil palm agro-ecosystems: CAB International – 2004
Expected outcomes and impacts of the project: a) multitrophic biodiversity assessment / inventory of oil palm plantations including an oil palm genetic resource collection providing ex situ conservation of indigenous microbial
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diversity for use by local researchers, b) objective indicators of sustainability developed and selected palm oil companies engaged with their evaluation, c) a scientific robust evaluation of current managing practices in terms of their impact on species diversity. Evidence of sustainability documented, d) measurable improvement achieved in key areas against sustainability criteria, while maintaining or improving system productivity and profitability.
Increasing productivity with smart alternatives : Bayer CropScience – 2004
Project objectives : to have oil palm growers implement at their plantations the principles of Good Agriculture Practices (GAP) that are founded on safe and sustainable development and management and which comply with local and international safety standards, laws and regulations.
Collective gains and sustainable palm oil through smallholder production: IIED (International Institute for Environment and Development – 2004
Project objectives: to prepare and share practical guidance for a variety of stakeholders on how best to develop and engage with smallholder producers of palm oil to maximise long-term social, economic and environmental viability and sustainability in the oil palm sector.
The use of Key Biodiversity Area definition to support risk assessment within the oil palm sector in Sumatra, Borneo, Java, and Peninsular Malaysia: Conservation International Indonesia – 2004.
The KBA methodology has been applied in many regions to identify sites of global conservation importance by number of environmental organizations. Based on the successful implementation of the methodology in these regions, Conservation International is currently working in collaboration with BirdLife Indonesia, WCS, and Forest Watch Indonesia to identify and map KBAs in Sumatra as a first step towards defining globally important sites for biodiversity conservation.
Economic impacts of plantation development on smallholders: Indonesian Palm Oil Commission (IPOC) - 2004
Project objectives: to improve smallholder earnings by overcoming problems encountered by the development of large plantations and to promote better plantation practices in relation to the production of sustainable palm oil.
Implementation of bank risk assessment policies for the Indonesian oil palm and timber plantation sectors: WWF Indonesia – 2004
Project objectives: to aim to define, and test in practice, a workable approach to bank risk assessment policies for the oil palm and timber plantation sectors in
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Indonesia. This would help committed banks to avoid undue negative environmental and social impacts of their lending and investment activities in the Indonesian plantation sectors while simultaneously reducing their investment risks.
Reducing impact and enhancing sustainable management of oil palm in peat lands: Global Environment Center (Malaysia) – 2004
Proposed outputs: practical manual for reduced environmental impacts and best management practice for oil palm plantations in peat lands, demonstration sites for improved best management practice, guidelines on site selection of oil palm in peat lands, and model for integration of oil palm development and peat land conservation strategy to maintain peat land functions and values.
Implementation of compost production unit using empty fresh bunches (EFB) and palm oil mill effluent (POME) in order to avoid environmental pollution and to valorise these wastes for sustainable agricultural fertility purpose: PT Smart and Cirad (Indonesia) - 2002
Development of an agri-environmental indicator (Indigo method) for Nitrogen management in oil palm plantations: PT Smart and Cirad (Indonesia) – 2004
Risks of environmental pollutions exist with nitrogen fertilizers. The project objective is to set a useful indicator evaluating the risk in order to enhance the nitrogen fertilizer policy. After the nitrogen issue, other indicators (phosphorus, potassium fertilizers, pesticides…) other indicators will be performed too.
Implementation test of sustainability RSPO criteria in PT Smart plantations: PT Smart and Cirad (Indonesia) – 2005
Enhance of BMP plantation handbooks in accordance with RSPO criteria: PT Socfindo, PT Smart and Cirad – 2005
WWF/IPOC/DOEN project to assess the environmental impact of oil palm plantations on forests and biodiversity in Indonesia. The aim is to define "better/best solutions" that serve both the interests of business and the environment.
Dutch land use abroad: Consultancy and Research for Environmental Management (CREM) (Netherlands)
A qualitative and quantitative analysis of the use of foreign land associated with their consumption in the Netherlands has been performed for a large number of particularly agrarian products (such as cocoa beans, soy and palm oil). In addition, for a number of case studies (including one on palm oil), an analysis has been made of the socio-economic risks associated with such foreign land use.
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All these initiatives reflect a common will to propose negotiated solutions able to respond with the best solutions to the environmental and biodiversity issues linked to the development of the oil palm industry, without stopping that development, which is necessary for meeting the high world palm oil demand.
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ANNEX 15: PRELIMINARY MARKET TRANSFORMATION STRATEGY FOR COCOA
Preliminary Market Transformation Strategy for Cocoa
Note: this preliminary Strategy will be finalized by the BACP Program Management Unit at the beginning of implementation and it will be approved by the Steering Committee.
Introduction
BACP goals and funding criteria
The Biodiversity and Agricultural Commodities Program (BACP) is a program funded by the Global Environment Facility (GEF) and implemented by the International Finance Corporation (IFC). Its goal is to contribute to the preservation of global genetic, species, and ecosystem diversity within agricultural production landscapes, by transforming selected commodity markets. BACP will work in four commodities: cocoa, palm oil, sugarcane, and soybean. As a market-based program, BACP will support projects in four areas:
The enabling environment, including dialogue with industry groups and government, and research and case studies to define and document the economic benefits of biodiversity.
Improving production (supply side), for example through industry-sponsored training programs for farmers, emphasizing biodiversity-friendly practices.
Building demand for biodiversity-friendly production, for example, through support to certification or verification schemes.
Helping financial institutions to better link finance with the adoption of biodiversity-friendly practices.
The BACP is premised on the need to work to conserve biodiversity outside protected areas, and on the GEF’s associated emphasis on promoting the mainstreaming of biodiversity in production landscapes. By working on the supply- and demand-sides in parallel, BACP will ensure that the cocoa it promotes is indeed demanded by the mainstream market.
The BACP Market Transformation Strategy for Cocoa defines the priorities along which BACP will allocate funds for cocoa projects in the first 2-3 years of implementation. The BACP budget for cocoa in the first five years of implementation is approximately US$1,700,000. A second five-year phase is expected to follow. BACP’s target countries for cocoa are Ghana, Côte d'Ivoire, Indonesia and Brazil, which together represent more than 70% of global production of cocoa. In the course of the ten-year life of the Program,
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additional countries may be added in response to supply-side or demand-side market changes.
All funds given by BACP must be matched by at ratio of at least 2:1 (two dollars of co-financing for every dollar of GEF funds). Funding decisions will be made on the basis of a proposal from the project sponsor that will be reviewed and approved by IFC. All proposals must meet the criteria established in Section I.K (BACP Project Cycle and Project Selection Criteria) of the BACP Program Appraisal Document.
Restrictions. BACP will not support projects that center only around the production of organic or fair trade cocoa as such, as these are not labels that guarantee biodiversity benefits per se. That said, all other things being equal, BACP will prefer a project that has a positive social component to one that does not.
BACP will not support production changes that merely meet the local legal or regulatory requirements of producers. BACP will not support long-term scientific research, but it can support the dissemination of research findings.
BACP will not channel GEF funds to directly subsidize private sector firms; BACP funds may however be channeled through private sector actors in certain projects, in a transparent and verifiable manner, for a specific biodiversity-enhancing activity or project which meets the BACP’s criteria. In general, BACP funds will go to third parties, such as NGOs, small local specialized agricultural or environmental consulting firms, associations, applied research institutions, field schools, foundations, etc., which are able to implement the requisite technical assistance (TA). Private sector partners at any stage of the supply chain will be expected to provide co-financing leverage, both cash and in-kind.
General observations on the market for biodiversity-friendly cocoa
The cocoa Market Transformation Strategy rests on the following general observations: While cocoa production can have negative impacts on biodiversity, it can also
have positive biodiversity benefits, if biodiversity-friendly practices are implemented within agroforestry systems. The Strategy will encourage the adoption of new and continued use of existing biodiversity-friendly practices within cocoa agroforestry systems.
That said, there is no commonly-agreed definition of what constitutes “biodiversity-friendly cocoa production systems.” At this time it is generally agreed that the Rainforest Alliance (RA) certification guarantees a higher level of biodiversity in production landscapes; other certification systems might arise in the course of program implementation, and if they include strong biodiversity protection criteria, the program may support them as well. The Strategy will use the RA certification as a benchmark definition of biodiversity-friendly cocoa for the time being, while supporting activities research to better define biodiversity-friendly cocoa production systems and their benefits to farmers. Recognizing that different approaches will be required in different markets
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and ecosystems, BACP will not seek to promote one exclusive biodiversity standard or certification. However BACP will seek to work with multi-stakeholder initiatives that may have a more widespread impact of the mainstream.
In general, biodiversity and environmental issues are currently eclipsed by concerns about child labor, which have captured the attention of media, the public, and therefore, the boardrooms of major industry players. Nevertheless, a handful of industry leaders are beginning to explore the value of biodiversity to cocoa production, and to experiment with incorporating environmentally-friendly cocoa into mainstream products. In its first years of implementation, BACP will support industry leaders in their efforts to source biodiversity-friendly cocoa (in later years, the Strategy may, on the contrary, emphasize outreach to other industry players).
Sufficient demand exists from industry leaders for RA-certified cocoa. The challenge lies in scaling-up supply and in whether RA can be applied to the mainstream. In the short-term, BACP will emphasize development of supply, rather than creation of demand.
Nearly all cocoa is grown by individual smallholders rather than by large agribusinesses. BACP will reach farmers primarily by working through traders and other industry players in the supply chain who have existing financial relationships with the farmers or with farmer cooperatives or associations.
There is currently no roundtable process similar to those for palm oil, sugarcane, or soy, which define environmental Principles and Criteria whose implementation BACP could support (efforts are underway to develop a similar cocoa initiative, but it’s not clear yet whether these will succeed). BACP will engage with ongoing industry dialogue on sustainability.
Report structure
The remainder of this report addresses each of the four BACP components listed above. It briefly presents the main findings related to each component, and their implications for the Strategy. The document also discusses short-term vs. long-term Strategy, and identifies remaining information gaps.
Enabling environment.
Define “biodiversity-friendly cocoa production systems”
While industry recognizes that cocoa agroforestry benefits the environment, no commonly-accepted definition exists of ‘”biodiversity-friendly cocoa production.” It is generally agreed that a cocoa agroforestry system that resembles early-stage secondary-growth forest with respect to tree diversity and structure (multiple strata) is biodiversity-friendly, but such production systems can take a variety of forms and incorporate many different types of native shade-giving species (timber, fruit, medicinal, etc.). The relationships between level and type of shade and level of biodiversity have not yet been studied in detail. For the time being, the best working guideline for biodiversity-friendly
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cocoa production is contained in Section 2 (Ecosystem Conservation) of RA standard’s “additional criteria and indicators for cocoa production”.98
In addition, a number of research reports seem to favor full sun system in certain cases and agricultural intensification leaving more space for biodiversity protected areas. This nevertheless only works well for biodiversity when there is enough mastery of land use, at the landscape level, which is not the case in number of producing countries.
Therefore; in addition to examining farm-level issues, a biodiversity-friendly cocoa production system will also take into account biodiversity at a landscape level. BACP might consider how land use planning can situate biodiversity-friendly cocoa farms in such a way as to provide a wide area or corridor for wildlife.99
The lack of a definition of biodiversity-friendly cocoa at the farm and landscape level is a fundamental challenge to BACP, because the program needs to know what types of production systems it will promote. For the moment, it is pragmatic to rely on the RA certification, but in order to fully incorporate biodiversity opportunities into mainstream cocoa production, more research is needed to define the types of production systems have the greatest biodiversity benefits.
BACP will support projects that help further define the farm and landscape elements of biodiversity-friendly cocoa production systems. Where practical, the definitions should focus on biodiversity performance levels, rather than on prescriptive approaches, and should be agreed to in a multi-stakeholder initiative.
Document the benefits to farmers of such systems
If biodiversity-friendly cocoa production is to be adopted on a wide scale, farmers must be convinced of its benefits. While part of the answer lies in a likely premium for RA-certified products and/or access to markets, BACP should also be in a position to provide a more rigorous answer, demonstrating that on-farm biodiversity is in the farmer’s economic interest.100 Little research has been done to quantify the benefits to farmers of a biodiversity-friendly production. These benefits may include cocoa-specific attributes such as increased resistance to pests and diseases, reduced labor costs, increased resilience to adverse climatic conditions, higher quality cocoa (larger average bean size/weight), more stable cocoa production, longer production during the harvest periods, or changes in cocoa quality, and benefits related to other agroforestry products, such as, income diversity (due to income from different crops), better spread of income throughout the year, greater yields and/or revenues per ha., etc.101 Once this research has
98 http://www.rainforest-alliance.org/programs/agriculture/certified-crops/documents/criteria_cocoa_2005.pdf99 Landscape-level approaches being promoted by CI, Eco-agriculture Partners, IITA (in Cameroon), APPTA in Costa Rica, and by Conservation Measures Partners (coordinated by Foundations of Success) are worth further exploration. 100 RA-certified cocoa currently earns about a 200 US$/t premium above market prices; the cost of certification is about 40 US$/t. The difference is available as positive incentive to reward farmers and other members of the supply chain (e.g., cooperatives).
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been conducted, the benefits must be explained and demonstrated to farmers in and effective manner.
BACP will support projects that (1) document the variety of benefits to farmers of biodiversity-friendly cocoa-production and/or (2) demonstrate or explain these benefits to farmers.
BACP will also ensure that any supply-side project it supports (see Section 3 below) duly tracks the project’s biodiversity and farmer income benefits in its Monitoring and Evaluation component.
BACP will also document the overall business case to the value chain for biodiversity-friendly cocoa at the farm and landscape level.
Participate in policy dialogue on cocoa
Because it is a major source of export revenues and jobs in Côte d'Ivoire and Ghana, decisions related to cocoa production are highly political. For example, the way the Ghana Cocoa Board (Cocobod) is set up does not currently easily enable RA certification of Ghanaian farmers to occur, given that all cocoa is sold centrally through the Government’s Cocoa Marketing Corporation at set prices, in order to avoid discrimination among farmers.
The situation in Cote d’Ivoire, however, is much more open, with those companies interested in promoting RA certification being able to do so without any policy or administrative constraints.
Conversely, the farm gate price for cocoa is significantly lower in Côte d'Ivoire than in Ghana due primarily to much higher taxes levied on the cocoa sector in Côte d'Ivoire. This differential has led to significant smuggling of cocoa from Côte d'Ivoire into Ghana over the past few years (not so long ago, the situation was reversed, due to both higher farm gate prices and a stronger currency in Côte d'Ivoire than in Ghana).
For cocoa in West Africa, one of the important policy barriers to biodiversity-friendly production relates to the ownership of timber trees by farmers. Policy reform is needed to clarify private property rights for these trees so as to encourage more diversified land cover on cocoa farms as well as increased income. It will also be important to work with the cocoa marketing board in Ghana to facilitate the sale of some form of verified cocoa, and to encourage investments in agricultural extension efforts to reduce cocoa pesticide usage in Indonesia.
101 The Sustainable Tree Crops Program (STCP) are also exploring payments for ecosystem services, perhaps related to the Volta dam in Ghana; the Tropical Agricultural Research and Higher Education Center (CATIE) has investigated payments for carbon sequestration, and has found that this does not seem very promising at the moment due in part to high transaction costs.
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Obviously, the most important policy issue at the moment in Côte d’Ivoire concerns the political and social unrest. This is not however a situation on which BACP can have an influence. But BACP will try and maintain a minimum level of activity in Côte d’Ivoire since the private sector is still operating there in the cocoa sector.
BACP will conduct further research to finalize its policy priorities, and will pursue these policy priorities with the relevant partners, in particular the World Bank.
Supply side / Production
Fair trade and organic cocoa have so far been relegated to niche markets. It is estimated that the market for specialty cocoa, including fair trade, organic, and fine flavors/origins cocoa, is only 80,000 T, out of a global market of 3,000,000 T (less than 3%)102. Nevertheless, mainstream chocolate manufacturers are showing interest in these specialty markets. For example, Cadbury Schweppes has bought Green&Black’s (an organic brand), and the trader ED&F Man has established a new division, called Corigins, to serve the markets for fair trade, organic, Rainforest Alliance-certified and origins cocoa.
Most relevant to BACP, Kraft has entered into a partnership with RA, the trader Armajaro, and others103 to train farmers in Côte d'Ivoire to grow RA-certified cocoa. Similarly, the trader Ecom (whose buyers include Nestlé, Ferrero, and Starbucks), runs a farmer training program that teaches Better Management Practices for cocoa and incorporates a trade finance component. Ecom will assist farmers in obtaining RA certification in Côte d'Ivoire; other projects with related objectives are currently being discussed and are likely to start in 2006. The cocoa sourced by the Kraft and Ecom efforts is intended to be used in mainstream products; however, because of the labor-intensive requirements of farmer training, it will take several years to build up significant supply.
BACP will support industry leaders in their efforts to train farmers to grow biodiversity-friendly cocoa. These efforts may include training around the RA certification or other methods, and may be accompanied by a trade finance component.104
Demand side
Industry dialogue on environment impacts of cocoa production was stimulated by the so-called “Panama Conference” of 1998, hosted by the Smithsonian Tropical Research Institute, but has since slowed down, partly due to subsequent industry focus on child labor issues. Efforts are ongoing to revive this dialogue.
102 Personal communication, Tony Lass, May 2006.103 Project partners include: Kraft, Rainforest Alliance, Armajaro (London-based trader with operations in Côte d'Ivoire), USAID, UNEP, GTZ, EDE Consulting and Anader (local trainer).104 Such a component would be in a separate, complementary, investment project of the IFC or another financial institution.
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A World Cocoa Foundation task force on links between the economic, environmental and social aspects of cocoa production is in preparation,
WWF is exploring possibilities for a Roundtable on sustainable cocoa, parallel to similar roundtables for palm oil and other crops.
An international voluntary group called INAFORESTA includes among its objectives “to decrease or mitigate the negative impacts of cocoa cultivation on forest cover and enhance the contribution of cocoa cultivation to local and global ecological systems.”105
The International Cocoa Organization has a task force examining indicators of sustainable cocoa production.
The SAI Platform (Sustainable Agriculture Initiative) was created by the food industry to actively support the development of and to communicate worldwide about sustainable agriculture. Members include Nestlé, ECOM, and Kraft. Current activities in cocoa are limited, but SAI has indicated that they would participate in the creation of a cocoa initiative if convened by IFC/World Bank Group.
Some other initiatives worth keeping in touch with include: The Sustainable Food Lab (their Benchmarking work might be relevant) GTZ (explore the potential for replicating the “Common Code for the Coffee
Community” for Cocoa) The Dutch Government (learn more about their support for a sustainable cocoa
initiative).
These discussions are all at very early stages. “Biodiversity” is only starting to enter mainstream industry dialogue related to production, thanks, in great part, to the BACP development team’s efforts but also to other GEF agencies and their partners that are preparing projects in that area (UNDP, UNEP, CI, RA,…).
BACP will participate in industry discussion groups that address the impacts (both positive and negative) of cocoa production on biodiversity and will support activities that further document their compared merits.
Finance
Finance needs related to cocoa production include very short-term finance to cooperatives (one-week) to allow them to make cocoa purchases; and short-term finance to farmers (6-9 months) to cover the costs of inputs, simple post-harvest technologies, tools, and/or of daily living (school fees for children, etc). The sums needed by individual farmers are very small – around US$100 per annum. Local financial institutions typically charge very high interest rates (around 20% per year); by contrast, international traders can offer much lower interest rates set according to international money markets. For example, Ecom’s farmer training pilot contains a finance component.
105 Members: Conservation International, Mars, the International Institute for Tropical Agriculture, the World Agroforestry Center, and CATIE.
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It is not yet known what finance requirements might be associated with biodiversity-friendly cocoa production. For example, perhaps annual costs related to pesticides or fertilizers might decline (though the purchase of spraying equipment and protective clothing will probably be required to improve the effectiveness and safety of agrochemical application), but one-time expenditures for seedlings of shade trees might increase.106 These issues could be covered as part of a modest research program sponsored by BACP.
BACP will investigate farmers’ and cooperatives’ finance needs related to biodiversity-friendly production.
Expected Outcome
It is expected that within 3-5 years, as a result of BACP’s support, there will be consensus on a definition of biodiversity-friendly cocoa, and on its benefits to farmers; that enough biodiversity-friendly cocoa will be on the market to produce at least one mainstream chocolate product; that private sector-sponsored farmer training & finance programs incorporating biodiversity would expand significantly from the baseline (at least five-fold); and that trained farmers will understand the nature and benefits of biodiversity-friendly production systems, and will adopt such systems.
Other
Discussion of BACP’s long-term Strategy
BACP’s longer-term Strategy will, of course, depend on the outcome of its current Strategy and on market developments. Issues to be addressed in the medium- to long-term might include:
Expanding the RA certification (or other suitable certification) to Ghana. Bringing a new certification to Ghana will require authorization from Cocobod; currently, Cocobod only authorizes specialty cocoa from a single, large cooperative.107 This limits the certification-based work BACP can support in Ghana, but on the other hand, is an interesting position in the perspective of finding biodiversity-enhancing principles and criteria and BMPs that can be accepted in the mainstream.
Land use planning, either at the national or regional level. The preliminary Strategy focuses on biodiversity at a farm level but will need to focus on the landscape level as soon as possible.
Replanting fallows, abandoned or degraded lands with cocoa agroforestry systems. In Ghana and Côte d'Ivoire respectively, 70% and 23 % of trees are over
106 These costs would probably be incurred over a 5 year period as farmers incorporate shade trees over time; this not only reduces the seedling expenses and associated labor costs, but also allows the farmer to experiment with the new approach, and not put all his cocoa under shade at once; this is particularly important if the planting also involved rehabilitation of older cocoa – this reduces yield in year 1-2 but then significantly increases production.107 The Kuapa Kokoo cooperative in Ghana has more than 30,000 cocoa farmer members; but only a small (<5%) volume of their production sold via differentiated market channels (Fair Trade).
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25 years old. Furthermore, demand for chocolate has been steadily growing at a rate of 3% per year. As the need for expansion of cocoa lands increases, BACP should explore incentives for replanting fallow, abandoned or degraded lands with cocoa agroforestry systems, in order to avoid expansion into natural habitat (although little remains in Ghana and Côte d'Ivoire) and potential replacement by full-sun production.
Finance that supports biodiversity-friendly practices. When biodiversity-friendly cocoa is better defined, BACP will be in a position to assess farmer’s finance needs related to production of biodiversity-friendly cocoa. BACP can explore issues such as: which traders or local financial institutions (FIs) would make good partners, what their training needs might be, how traders and the FIs might interact, what form of guarantees / off-take agreements might be most effective, etc. BACP should also coordinate with potential IFC investments in financial institutions which could lend to the cocoa sector, as well as with IFC/GEF Environmental Business Finance Program (EBFP).
The establishment of nurseries that can provide seedlings of trees suited to local agroforestry needs will be necessary if such trees are to be planted in large numbers, and with good seed stock. While BACP may not be suited to this level of SME development, the Program should remain aware of this issue.
Researchers are seeking to increase the productivity and lifetime of cocoa through improved varieties or other means. All other things being equal, higher yields per tree should reduce the amount of land needed to cultivate cocoa. Research on cocoa yields is better funded than research projects related to biodiversity and so need not be a priority for BACP. However, BACP should stay informed of such research, as it may impact material taught in BACP-sponsored farmer training.108 The monthly cocoa research digest produced by WCF will be helpful in this regard.
Identity Preserved Schemes established through the supply-chain may be needed in the long-term in certain areas. Traceability to the producer is key to ensuring that farmers can be rewarded for quality and food safety.
Building local capacity for training (e.g., farmer field schools) will important if a large number of farmers are to be trained on biodiversity friendly production methods. Government-run extension programs in Ghana and Côte d'Ivoire are underperforming.
Building the institutional capacity of farmer cooperatives and associations will be fundamental to their ability to implement certification systems and to effectively promote biodiversity-friendly cocoa production practices.
Information gaps
The research conducted to date has centered around Ghana and Côte d'Ivoire. At inception, BACP will conduct additional research into cocoa production and opportunities for BACP in Indonesia, Brazil and other countries. Additional research may also be conducted into finance needs related to biodiversity-friendly cocoa production.
108 For example, anecdotal observations suggest that 20% of cocoa trees produce 80% of cocoa production on small-holder farms. If 20% of the less productive trees were replaced with economically-attractive native species the biodiversity (and improved income/cash flow) benefits would be significant.
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The proposed projects will initially take place in Ghana and Côte d'Ivoire. At this point, it makes sense for BACP to be opportunistic in selecting the specific areas of Ghana and Côte d'Ivoire where it will work; this allows the Program to take advantage of existing partnerships and projects. At a later time, BACP might identify and then focus more specifically on certain regions which present especially high conservation value.
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Background Information for the Preliminary Market Transformation Strategy for Cocoa109
INTRODUCTION
This document provides information on biodiversity issues related to cocoa, and on cocoa supply (production), demand, and finance, and on the general enabling environment. This document is intended as input to the BACP Market Transformation Strategy for Cocoa.
Most scientific literature uses the term cacao to refer to the plant Theobroma cacao L., but the product of commerce from the plant is known as “cocoa.” 110 In deference to common usage, the term cocoa is used here interchangeably.
BIODIVERSITY IMPACTS
Agronomic fundamentalsCocoa is a permanent tropical tree crop, with two main types of production systems:
Shade-grown systems are the most frequent and use either natural trees from the forest or planted trees, frequently leguminous species. Shade-grown systems require less chemical inputs but, due to pressure on prices, farmers tend to shift from shade-grown to full-sun systems to increase yield and income. Shade-grown systems can be classified either as rustic, in which the cocoa is planted beneath thinned primary or old secondary forest, or as planted shade, in which the planted shade trees could range from traditional polyculture through to a specialized, single-species shade (e.g., coconut).
Full-sun systems are more intensive, either monocrop stands or plantations under very degraded forests; they require high levels of inputs but give higher yields and income. They are mainly found in Malaysia and Indonesia, but also in Brazil and Côte d’Ivoire. They have often proved to be unsustainable.
Full-sun systems tend to be favored by younger farmers, as they are perceived as being more lucrative.
Cocoa trees begin production 3-5 years after planting, and typically produce for 25 years in a shaded system. Soil management is minimal in shade-grown systems and is limited to clearing of the under story vegetation and planting seeds or plantlets without cleaning the entire area. In full-sun systems, mechanical clearing is used, resulting in the destruction of soil fauna and flora and soil compaction, which in turn can lead to soil degradation. After planting, there is no need for further soil management.
109 Based on BACP preparatory work commissioned by IFC to a consortium led by Price Waterhouse Coopers and including CIRAD, Alterra and PRI.110 Shapiro, H-Y, and Rosenquist, E., Public-private partnerships in agroforestry: the example of working together to improve cocoa sustainability. Agroforestry Systems 61: 453-462, 2004.
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Shade-grown systems use little fertilisers as most farmers can not afford it. In areas with a long history in cocoa cultivation, producers apply fertilisers when prices are good. Rational use of fertiliser could increase yield by a factor 2, or even 5 when water supply is adequate. Without fertiliser applications, maximum yields are 500 to 700 kg/ha /year, but this will decline with the age of the trees.
Most small farms do not use pesticides when prices are low, mainly because they do not have the financial means to buy the products. As with fertilisers, some of them apply pesticides when prices are good, or when the levels of infestation threaten the crop, as some pests could kill the trees (mirids, Phytophthora, etc.). The pesticides are efficient but often costly, and some will be prohibited in the near future.
The global harvested area for cocoa in 2005 was approximately 7 million hectares, with just over half of that in BACP’s three target countries (Ghana, Côte d’Ivoire, and Indonesia).
Table 10: Area harvested for cocoa in BACP's target countries
2005 (000 ha) Côte d’Ivoire Ghana Nigeria Brazil Indonesia
Harvested area 1 800 1 500 1 062 666 490
Share of total harvested area worldwide 26% 21% 15% 10% 7%
Source: BACP Preparation - Market Survey for Cocoa
Impacts of productionThe main negative environmental impacts of cocoa production are: Habitat conversion. In Ghana and Côte d'Ivoire, there is very little remaining natural
habitat suitable for conversion to cocoa; most of that land is already in national parks. There is a risk that cocoa production converts from shade-grown to full-sun systems. In Indonesia thousands of hectares of forest are still available, and cocoa is often considered as the first step in a forest conversion process.
Environmental pollution due to pesticides is only a serious problem when they are used in great quantities in full-sun systems. (Risks posed to farm children who spray pesticides is a social problem being addressed by the industry).
Soil degradation is essentially linked to loss of fertility and the consequent need to move to new areas. Loss of fertility is mainly due to inadequate cultural practices, in particular the lack of fertilizer supply and of vigorous planting material.
As the first phases of processing takes place on farms, there are few concentrations of residues, mainly pod husks and pulp, and fermentation effluents.
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Biodiversity benefits of cocoa agroforestry systemsShaded cocoa production systems that mimic primary or secondary growth forest also produce positive impacts on the environment when compared to monoculture crop alternatives. Although the biodiversity benefits of cocoa agroforestry have not been systematically documented and studied, enough scientific evidence exists to back up the empirical observation that cocoa farms with diverse shade have the potential to support greater local diversity and act as a more effective refuge for some tropical forest organisms than alternative lowland tropical crops. This is echoed in the findings of the First International Workshop on Sustainable Cocoa Growing (see Box 1).
Box 1: Summary of findings of First International Workshop on Sustainable Cocoa Growing
The participants of the First International Workshop on Sustainable Cocoa Growing (Panama, 1998) believe that the cultivation of cocoa can have an important role in maintaining and enhancing a diverse and sustainable tropical environment.
Cocoa grown within a biologically diverse and environmentally sustainable agricultural system is capable of providing lasting economic, social, and environmental benefits. Grown in such a system, cocoa is a crop ideally suited to small holder cultivation.
A sustainable, biologically diverse system of growing cocoa will: Be based on cocoa grown under a diverse shade canopy in a manner that sustains as
much biological diversity as is consistent with economically viable yields of cocoa and other products for farmers.
Use constructive partnerships that are developed to involve all stakeholders with special emphasis on small farmers. Build effective policy frameworks to support these partnerships and address the particular needs of small farmers for generations to come.
Encourage future cocoa production that rehabilitates agricultural lands and forms part of a strategy to preserve remnant forests and develop habitat corridors.
Maximize the judicious use of biological control, techniques of integrated management of pests, disease, and other low input management systems.
Source: Summary of Panama conference, as posted on http://nationalzoo.si.edu/ConservationAndScience/ MigratoryBirds/Research/Cacao/principles.cfm
In addition to providing biodiversity benefits, shade trees also enhance cocoa production: studies reported in Rice and Greenberg found that that the leaf litter for shade trees provides mulch and a supply of organic matter for the soil, which, in turn, can increase aeration, infiltration, and drainage, as well as result in a slow and steady release of nutrients into the soil. The decaying litter also provides resources for a greater diversity of soil and litter organisms. Shade trees and the insects they help support can reduce soil erosion, promote greater long-term production of older cocoa plants, offer protection from ground-level winds, and most importantly, can protect cocoa trees from windborne spores of fungal diseases, including Witches Broom and Frosty Pod Rot. Other papers report that shade systems offer better pollination.
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Gockowski et al. found evidence that agroforestry systems also provide broader ecosystem services such as habitat conservation, climate change mitigation, hydrological cycling, and watershed protection. The authors note that the degree to which these services are provided depends in large part on the type and degree of shade maintained as well as their spatial coverage in the landscape.111
Despite these general indications of links between cocoa agroforestry and biodiversity benefits, the fact remains that, as reported by Greenberg in preparation for the Panama workshop, “the most striking feature of the published research [on cocoa and biodiversity] so far is its paucity.”112
Finally, it is worth noting that there is no single CGIAR-like research institution for cocoa which can set a research agenda, coordinate efforts in order to avoid duplication, serve as a clearinghouse, etc. The main emphases for cocoa research today are germplasm, breeding, and pest control.
Indicators and baseline for biodiversity-friendly cocoaThere is little information available to farmers on the benefits to them of a biodiversity-friendly cocoa production system, or even on how to define such a production system. This makes it difficult for BACP to promote specific biodiversity-friendly practices.
What is clear, at this point, is that there will not be a single system that optimizes biodiversity conservation and farmer value. Ideal systems will vary according to local conditions (soil, topography, climate, proximity to natural habitat), and to farmer preferences for shade trees (fruit trees, medicinal trees, timber trees, etc). Currently no specific indicators for or definition of biodiversity-friendly cocoa exists. The closest is the RA Certification, whose Criteria and Indicators for Ecosystem Conservation require cocoa farms to include a minimum of 70 trees per ha, from at least 12 different indigenous species; a minimum 40% shade cover, and a two-strata canopy.113 The RA certification is regarded by specialists as the only cocoa certification that addresses issues related to biodiversity, and it is a pragmatic proxy BACP can use to identify biodiversity-friendly cocoa.
As it is prescription-based (as opposed to target-based) the RA certification has some limitations. It does not set any specific biodiversity targets (e.g., number or abundance of species found per ha, etc); nor does it provide any indicators for measuring landscape-level issues.
Production of RA-certified cocoa is just getting underway in Côte d'Ivoire. It will start small, as farmers first need to be trained. No RA-certified cocoa is produced in Ghana or
111 James Gockowski, Stephan Weise, Denis Sonwa, Mathurin Tchtat, Martine Ngobo, Conservation Because It Pays: Shaded Cocoa Agroforests in West Africa; discussion paper, posted at http://www.worldcocoafoundation.org/Library/Documents/NAS.pdf112 http://nationalzoo.si.edu/ConservationAndScience/MigratoryBirds/Research/Cacao/greenberg.cfm113 These figures were defined so as to mimic secondary growth forest.
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Indonesia. This provides a clear baseline of Zero for adherence to the RA standard in the BACP target countries.
A complementary market-based indicator is the extent to which major chocolate manufacturers use RA or other biodiversity-friendly cocoa in mass market products. Currently, this is negligible (see more under Section 4, Demand-Side, and Section 6.1, Roundtables and industry groups).
Table 3 and Table 4 estimate the proportion of farms in Ghana and Côte d’Ivoire which are shaded, providing a useful baseline for level of shade (though not for level of biodiversity).
Further research needs to be done in order to establish indicators of biodiversity on cocoa farms or in cocoa production landscapes. One expert on cocoa and biodiversity suggested that hornbills would make a good indicator species: they are a keystone species for local ecosystems, as they play a critical role in seed dispersion, and cocoa agroforestry provides habitat for them.
Gap Analysis and Options for Filling in the GapsThe following issues related to biodiversity impacts should be explored during the implementation:
Cocoa production Indonesia: methods and impacts Environmental policies related to cocoa in Ghana, Côte d'Ivoire, and Indonesia
A preliminary study on policy related barriers to the adoption of biodiversity friendly practices has been conducted during the appraisal phase. Its findings have been included in the program appraisal document. It will be further developed during the implementation.
Specific regional priorities for BACP. BACP should be aware of specific regional issues related to cocoa production in its target countries: which regions are moving towards full sun, which regions still have natural habitat to be preserved or buffered.
Landscape-level issues. The RA certification does not address landscape-level issues. Generally, these issues are hard to address for cocoa because cocoa landscapes are a dense mosaic of small farms. BACP should understand more about landscape-level issues related to cocoa production in its target countries.
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SUPPLY SIDE
Structure of local productionAs shown in Table 2, Côte d'Ivoire, Ghana, and Indonesia are the world’s top three cocoa producers, accounting for 40%, 21%, and 13%, respectively, of world production (74% of global production).
Table 2: World Cocoa Production
Country Quantity000 t
% of total
Côte d'Ivoire 1 386 39.5%
Ghana 735 21.0%
Indonesia 450 12.8%
Nigeria 185 5.6%
Cameroon 167 4.8%
Brazil 163 4.7%
Ecuador 105 3.0%
Rest of the world 314 8.7%
Total 3 505
Source: ED&F Man Cocoa Ltd,.
Cocoa is grown by farmers who own or share-crop plots - typically 1-3 hectares in West Africa). The level of care required for individual cocoa trees make cocoa unsuitable for large plantations. Estimates vary, but roughly one million cocoa farmers are active in Ghana and Côte d'Ivoire combined. As an IFC program, BACP cannot work directly with smallholders, but needs to work through private sector entities who have relationships with the smallholders. Typically, this would be the traders (see more under Demand section).
The average yield is estimated by FAO at 500 kg of beans per hectare, but varies largely, from less than 200 kg/ha in Nigeria to 900 kg/ha in Indonesia. These figures are probably overestimated, because on data on harvested areas are not always reliable. Yields also vary from farm to farm according to the planting material used and the possible incidence of diseases. Farm yields are far from the potential yields of over 3,000 kg/ha obtained in research fields.
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Farmers’ finances tend to be precarious, which makes it difficult for them to invest in inputs such as seedlings or inputs, and which makes them vulnerable to crop failure, price drops, etc. Any measure BACP promotes will need provide clear economic benefits to farmers.
That said, the overall market for cocoa (as opposed to chocolate products) is sizeable: a rough estimated value for 2004 (production x price) comes to a little more than 5 billion US$, with respectively 2 and 0.9 billion US$ for Côte d’Ivoire and Ghana. This value, calculated for cocoa beans only, is largely underestimated as several producing countries now produce (and export) processed products with added value. In Côte d’Ivoire and Indonesia, approximately 25% of the beans are processed locally, in Ghana, the figure is a little more than 10%.
GhanaMarket. All cocoa sales are centralized through the Ghana Cocoa Board (Cocobod), which sells cocoa and sets national prices. This makes it impossible, currently, for individual farmers to obtain a premium for their product based on any kind of differentiation (fair trade, organic, RA, etc. Note also that as Ghana sprays its crop nationally this creates additional difficulties for organic in Ghana). This national uniformity is intentional: the government’s policy has been for cocoa from Ghana to be seen as being of uniform quality, and not to differentiate among regions, farmers etc. The one exception is the cooperative called Kuapa Kokoo,, which Cocobod has authorized to produce fair trade cocoa for sale through Cocobod.
That said, according to industry experts, if an important enough buyer expressed an interest in buying large volumes of a differentiated cocoa (e.g., RA-certified), Cocobod should be willing to agree to a trial scheme (especially if RA-certified or other cocoa is available from the competition, i.e., on the Côte d'Ivoire market).
Farmer training. Active groups include the government extension services (MOFA), Kuapa Kokoo and other licensed buying companies, and STCP.
Farm characteristics. About 42% of farmers use improved planting material for cocoa. However, over 70% of trees are over 25 years and will need to be replanted in the coming five years. 114 As shown in Table 3 a survey of nearly 2000 Ghanaian farms found that at least 30% shade was present in two-thirds of cocoa farms.
114 A.J. Simons, G. Schroth, M. van Noordwijk, R.R.B. Leakey, H. Shapiro and D.P. Garrity. Cultivating diversity: The role of cacao agroforestry systems in rural economic growth and conservation of biodiversity. Cocoa Symposium, National Academy of Sciences, 9-10 Feb 2006.
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Table 3: Proportion of shaded cocoa farms, Ghana
(shade as % canopy cover)
Number h/holds surveyed No shade Shade
< 30%Shade
30-60%Shade> 60%
Ghana 1,873 28% 42% 25% 5%Source: A.J. Simons, G. Schroth, M. van Noordwijk, R.R.B. Leakey, H. Shapiro and D.P. Garrity. Cultivating diversity: The role of cacao agroforestry systems in rural economic growth and conservation of biodiversity. Cocoa Symposium, National Academy of Sciences, 9-10 Feb 2006.
Cocoa quality. Cocobod recognizes and markets two grades of cocoa, mid and high. Ghanaian cocoa is considered to be consistent in quality (one batch being much like the next) and a good cocoa for mass-market chocolate (as opposed to Origins or Fine Flavor chocolate).
Research institutes. Cocobod runs the Cocoa Research Institute of Ghana (CRIG). Another institute to be aware of is the Nature Conservation Research Center (contact: John Mason, friend of Frank Hicks). Local universities also undertake cocoa research.
Côte d'Ivoire Market. Since the dissolution of the Caisse de Stabilisation, cocoa farmers are free to receive prices set by the market rather than by government. Lack of transparency, corruption, and an ongoing civil conflict make Côte d'Ivoire a difficult place to do business.
Farmer training. There are no functioning government extension services. A private organization called Anader (Agence Nationale d'Appui au Développement Rural/National Agency for Rural Development Support) provides farmer training, and works (among others) as a subcontractor to STCP.
Farm characteristics. Only 14% of farmers use improved planting material for cocoa. Cocoa trees in Côte d'Ivoire are younger than in Ghana: only 23% of trees are over 25 years. 115 The proportion of shaded farms in Côte d'Ivoire is two-thirds, similar to that of Ghana.
115 A.J. Simons, G. Schroth, M. van Noordwijk, R.R.B. Leakey, H. Shapiro and D.P. Garrity. Cultivating diversity: The role of cacao agroforestry systems in rural economic growth and conservation of biodiversity. Cocoa Symposium, National Academy of Sciences, 9-10 Feb 2006.
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Table 4: Proportion of shaded cocoa farms, Côte d’Ivoire
(shade as % canopy cover)
Number h/holds surveyed No shade Shade
< 30%Shade
30-60%Shade> 60%
Cote D’Ivoire 1,785 28% 44% 16% 12%
Source: A.J. Simons, G. Schroth, M. van Noordwijk, R.R.B. Leakey, H. Shapiro and D.P. Garrity. Cultivating diversity: The role of cacao agroforestry systems in rural economic growth and conservation of biodiversity. Cocoa Symposium, National Academy of Sciences, 9-10 Feb 2006.
Quality. As with Ghana, Cocoa from Côte d'Ivoire is also considered mass market cocoa (as opposed to cocoa for Fine Flavor chocolates); generally speaking, the quality of cocoa from Côte d'Ivoire is less consistent, than that from Ghana due to variations in the post-harvest care taken by farmers.
Research institutes. The Centre National de Recherche sur le Cacao. Other potential research partners will be identified during implementation.
Indonesia
Indonesia became a BACP country for cocoa during appraisal. More information will be sought during the implementation.
Market. Indonesian farmers tend to have better access to information about world market prices (via internet) and so they tend to get higher prices than their African counterparts.
Global market
UNCTAD reports that with the exception of eight of the last thirty years, supplies of cocoa have exceeded demand.116 World prices for cocoa are thought to follow a boom and bust cycle of over 20 years in duration, with production increases leading to low prices that then foster decreased production until consequent higher prices again fuel production increases. However, this cycle may be changing as a result of sustained oversupply in producing countries and other factors.
Although prices increased in the 1970’s and demand has continued to grow, prices have fallen consistently since then. Cocoa futures and options are traded on the New York Board of Trade and the London International Financial Futures and Options Exchange, where buyers can hedge against the volatility of cocoa prices.
FAO reported in December 2005 a 3.5 percent price decline from January 2005. “In addition to the effect of a stronger US dollar, the decline in prices followed concerns over an estimated global production surplus in the 2005/06 season along with indications of moderate increase in cocoa consumption in major consuming countries. Estimates
116 Most of this section is taken from a confidential report from WWF to IFC on Cocoa Certification.
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indicate a global surplus for the 2005/06 season of 70,000 tonnes, which compares with a revised deficit estimates of about 42,000 tonnes in 2004/05.”117
There is no industry consensus on price projections, although it is generally accepted that prices for niche products (fine flavours, organic, fair trade) will remain higher than prices for mass-market cocoa. Some experts expect a price rise in the next few years because “it’s been a while since we had our last major crop failure, so one is bound to come up soon;” others are more sanguine. It is worth noting that since the last cocoa shortage (1970s) the cocoa market has made great strides in terms of decreasing the amount of stock needed to meet demand. Thanks in part to the use of containers instead of bags, and to the arrival of modern warehouse and shipment tracking systems, cocoa can be shipped quickly to buyers. This implies that the amount of stock traders need to have in order to satisfy buyers has decreased, and makes the market better able to deal with a decrease in supply.
World prices and production of cocoa (from 1971 to 2004)
Social, economic, and legal factors affecting cocoa agroforestry
Certain social, economic and legal factors can encourage or discourage the adoption of agroforestry systems. The highly biodiverse agroforestry systems of Cameroon are found among ethic groups who have lived in the forest for generations and, as a consequence, have acquired a great deal of knowledge about their local ecosystem. Some farms have over 300 different tree species. The migrant farmers who farm much of Western Ghana and West Côte d’Ivoire do not have this depth of knowledge.
117http://www.fao.org/es/esc/en/20953/20996/highlight_108731en.html
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The extent to which farmers will be willing to incorporate productive shade trees (fruit, medicine, timber, etc) on their farms also depends on access to local markets. In areas where this access is possible, farms have much more incentive to diversity into other tree crops that can shade the cocoa. While creating local markets for produce from cocoa farms is a bit far from BACP’s core mission, it is certainly important for creating economic incentives for farmers to include more shade trees. National law on rights to timber can also prevent farmers from capturing the economic value of timber on their cocoa farms.
Finally, the gender implications of a diverse shape canopy should also be taken into account: it is typical for men to control revenues from timber, cocoa, and palm wine, and for women to exert control over revenues from fruit.118
Some related research has been conducted or is ongoing, for example: The Danish Centre for Forest, Landscape and Planning has published a Farmer’s
manual entitled “Learning about neighbour trees in cocoa growing systems” The STCP has undertaken research on “Conservation because it Pays: Shaded Cocoa
Agroforests in West Africa.” An Earthwatch Institute (Europe) project with Cadbury Schweppes and the Ghana
Nature Conservation Research Centre (NCRC) to improve biodiversity levels of cocoa farms in Ghana. The project aims to re-establish cocoa on land once used to grow it, a more ecologically balanced environment that provides a diversified habitat for birds and other wildlife and which increases cocoa yield and boosts farmers' long term financial security.
Another issue that BACP will need to take into consideration is the need for nurseries for shade trees. Most farmers grow shade trees from seed and do not know how to select seedlings for optimal growth. The establishment of nurseries would help ensure the quality (and associated revenues) of shade trees used in cocoa agroforestry.
DEMAND SIDE119
Cocoa products and their usesCocoa is essentially produced for two different markets: the bulk market and the fine or flavor market. The former is supplied mostly by beans from a variety of tree (Forestero) grown in West Africa. The latter, which accounts for less than 10% of world production, is grown from other varieties (Criollo or Trinitario), and comes mostly from Latin and Central America, Madagascar and Asia. Within these types, there are dozens of subspecies and variations, such as Rio Caribe from Venezuela, Arriba from Ecuador, and Java in Indonesia. Fine flavor cocoa is sold by mark rather than country of origin.
118 J. Gockowski, op. cit.119 Main sources for this section include the reports commissioned by IFC in the framework of BACP development or Better Management Practices project.
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The main cocoa products are cocoa butter, cocoa powder, and cocoa liquor. After processing, one third of production remains cocoa liquor and the rest is pressed to obtain cocoa butter and cocoa powder. The majority of cocoa butter is used in chocolate production along with the cocoa liquor, with a small quantity used in cosmetics. In total, around two-third of bean production is used to make chocolate.
Major end-markets for cocoa butter (for cosmetic use) and chocolate cake or powder (for culinary use) are the EU, which accounts for about half of consumption, and the US, which accounts for another quarter, with the remaining quarter in Russia, Japan, Brazil and a number of other countries.
The destinations of cocoa beans exported from BACP’s target countries are the following120: Côte d’Ivoire: Europe (72%), USA (26%) Ghana: Europe (90%), Japan 8% Indonesia: USA (91%), Europe (9%)
Most manufacturers blend beans from different sources: regional cocoas have very distinctive characters and flavors. A “flavor profile” is unique to a specific chocolate, and is considered to be the proprietary, secret recipe for the chocolate manufacturer. Production of single-source chocolate, using beans from just one country, region, or even one farm has been increasing.
Overview of cocoa demandCocoa consumption has been on a rising trend of circa 3% per annum for the last two decades. If this trend continues during the next ten years, the sector will face an increase in demand of around 1 million tonnes. Even a 1.5% annual increase would in a 500,000 tonnes increase in demand (about 16% of current production).
A direct relationship has been shown between cocoa consumption per capita and GDP per capita121. As emerging market economies such as China, India and Russia improve their standard of living, considerable increases in cocoa and chocolate consumption could be expected to follow.
In order to keep pace with the predicted rise in consumption, a continued increase in production is needed. Over the past 100 years, production increased due to the availability of land and labour, with few increases in yields. Now, in many producing countries, land availability is scarce, and concerns about habitat conversion could limit cocoa stands extensions in some others.This means that the main production increases must come from yield increases. Several important factors could contribute to yield increases, starting with the use of high yielding varieties instead of unimproved non clonal material. As losses due to pests and diseases are estimated to be around 40%, integrated pest management is another
120 UNCTAD Info Comm.121 Cocoa futures, CABI, p.14.
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important issue. Agricultural practices will need to be adapted to the high yielding material, which will require farmer training.
In Côte d’Ivoire and Ghana, with little new land available for cocoa, significant increases in production can only come from yield increases. In Indonesia land is available but yields could remain threatened by the Cocoa Pod Borer.
Market structure and major market playersNB: information gathered for this section is in great part confidential and cannot be provided here.
Major market players are the large processors and distributors for the chocolate confectionery and food industries, including Cargill, Blommer, Archer Daniels Midland and Barry Callebaut. The consumer chocolate market is dominated by Nestlé, Mars, Hershey Foods, Kraft Jacobs Suchard, Cadbury Schweppes and Ferrero.
Certain traders, processors, and manufacturers tend to work together, though of course these relationships are subject to competitive pressures. A rough mapping of relationships between traders, processors, and manufacturers follows:
While traders tend to have more direct relationships with producers than the chocolate manufacturers, traders take their cues from manufacturers requests. Therefore, BACP could work with manufacturers on creating market pull, and with traders on local implementation.
Figures 1 and 2 below show the complex interrelationships between different parties in the cocoa supply chain in Côte d'Ivoire, and also illustrate the pyramidal form of this chain, where the product of hundreds of thousands of farmers is exported via only a handful of companies. While chocolate manufacturers receive media attention over labor or other Corporate Social Responsibility issues related to cocoa production, they typically do not have direct relationships with the farmers from whom they purchase.
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Figure 1: Cocoa Value Chain for Côte d’Ivoire
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Farmers
Local Consumers
Shipping Lines
Distributors, Wholesalers
Consumer
Pisteurs
Traitants
Exporters Local Grinding Local ChocolateManufacturers
Co-operatives
“Up-country” buying stations
Plantations, Estates
Grinders (Europe/USA)
Warehouse (Europe/USA)
Chocolate Manufacturers
CTN (impulse), Supermarkets (grocery), Vending
Other Raws - milk, sugar, packaging
Credit, inputs, marketing,quality checks,transport, drying, blending, bagging
Cocoa growing, harvesting, pod breaking, fermentation, drying. Growing food crops.
Transport,blending, bagging,re -bagging, drying
Credit, inputs, marketing,quality checks,transport, drying, blending, bagging
Quality checks, de -bagging,blending, cleaning, drying, bagging (export bags), grading, “ usinage ”
Break bulk, containers, bulk containers, mega bulk,(25t lots)
Securing bean supplyfor exporters, grinders
Cleaning, Blending,Roasting, Pressing,Alkalisation, Blocking
Handling Agent Unloading, fumigation
Storage, cleaning, bulking
Cleaning, blending, roasting,pressing, alkalisation, blocking, bulk transport
Ice CreamBakingDrinks
Côte d'IvoirePorts: Abidjan, San Pedro
Europe/USAPorts: Amsterdam, Rotterdam,
Hamburg, Felixtone ,Antwerp, Norfolk (Virginia)Philadelphia (Pennsylvania )New York
Inspection Agencypo
wder
beans
Bulk,liquorbutter,powder
Block liquor,block butter,powder
Block liquor,block butter,powder
Pick up trucks,small lorries
Côte d'Ivoire Cocoa Pipeline
20t, 40t lorries
beans
Fumigation (Min of Ag approved)
Atto
rney
Wor
k Pr
oduc
t
Source: Martin Gilmour – The Cocoa Pipeline of Côte d’Ivoire
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Figure 2: Number of participants in the Côte d'Ivoire Supply Chain, from farmers to export
Farmers
Exporters
Pisteurs
Traitants
Numbers of participants Tonnages of cocoa
700,000 - 1,000,000
Around 5,000
Around 250
30
4 - 6 Shiping Lines
Produce 0.5 - 3 tonnes
Collects 100 - 200 tonnes
Collect and transport 500 - 10,000 tonnes
Process and export10,000 - 60,000 tonnes
Ship over 100,000 tonnes
Source: Martin Gilmour – The Cocoa Pipeline of Côte d’Ivoire
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Market trendsGeneral. Market trends in the cocoa industry include increased production in Asia, stable or increasing production in the Cote d’Ivoire and Ghana, and stable or diminishing production in Latin America, where labor costs and disease have taken a toll on plantings. Consumption increases are expected to continue, with growth of about 5% annually in the EU and US markets, and much sharper increases in the emerging markets of China and Russia. Cocoa is also increasingly seen as a viable tropical export crop that can be differentiated in the market, and marketers of fine chocolate products have begun to do so.
Organic and Fair Trade Cocoa. Organic cocoa is a niche market, representing less than 20,000T. The market growth in recent years reached 10-15% and the main challenges faced by organic cocoa production are quality of the beans, continuity of supply, logistics, quality of certification and simplification of procedures. It is estimated that consumers in the US will pay a 20% premium for certified organic products.122 Much cocoa is de facto organic but uncertified, as many farmers have difficulty affording pesticides and fertilizers.
Fair trade cocoa sales for 2003 were 2,643 T, which represented an increase of 60% of 2002.123 Assuming similar increases in 2004 and 2005, sales for 2006 would be around 10,000T now. The Fair Trade premium currently is US$150 per ton.
Demand for biodiversity-friendly cocoa
Demand for biodiversity-friendly cocoa. There is no demand for “biodiversity-friendly” cocoa as such. The next closest category of cocoa would be RA-certified cocoa, which Kraft wishes to use in its mainstream production of chocolate bars. The demand for organic and fair trade cocoa is growing steadily, but is expected to remain niche markets. While “organic” and “fair trade” are concepts consumers are aware of, “biodiversity-friendly” is a new concept with no formal constituency or recognition (and may not need to acquire it in a “branded” way).
Attributes of biodiversity-friendly cocoa. There is no evidence at this time that biodiversity-friendly cocoa would have special attributes related to flavor or quality, though little or no research has been done on this topic. At this point, it is possible that cocoa produced in a healthy and diverse agro-forestry system might have slightly different characteristics given the changes in the leaf litter on the ground and subsequent changes in the soil composition, but it’s hard to tell if that change would be perceptible. One could also say that a farmer who is careful about the farm, who works it well, generally produces better beans, and one could suppose that a farmer who’d received biodiversity training would indeed take better care of the farm, but one can’t really put a dollar value on this or infer that the cocoa produced will be of higher quality in a specific way.122 The Sustainable Cocoa Trade, An Analysis of the US Market and Latin American Trade Prospects, Lora L. Menter, February 2005.123 http://www.fairtrade.net/sites/products/cocoa/sales.html, most recent data available is for 2003.
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Other potential benefits of biodiversity-friendly production (longer farm lifetime, security of supply, traceability, brand reputation, access to product, etc) are not yet drivers of demand.
Book and claim vs. full traceability. Book and claim systems would probably be a workable option for purchases of biodiversity-friendly cocoa. Cocoa in now mostly shipped in containers rather than in individual bags. Full traceability could be too complicated, and is not even being considered for the child labor issues. Full traceability might be desirable for reputational reasons in the case of organic cocoa (where, for example, if a retail sample tests positive for agrochemicals, one would want to be able to know the farm it came from) but in the case of biodiversity-friendly cocoa, there’s no difference to the end consumer, nothing that can be tested for.
Positions and actions of potential partnersThe international workshop on sustainable cocoa production which took place in 1998 in Panama is generally considered as the starting point for stakeholders’ awareness on environmental issues in the cocoa sector. In a follow-up “Paris Declaration” in 1999, industry stakeholders committed to develop a “sustainable cocoa production” system. This group formally created the Coordination Group on Sustainable Cocoa in October 2000 in Malaysia. Chaired by COPAL (Cocoa Producers Alliance) and supported by ICCO, the different working groups of this multi-stakeholders’ initiative further study the various issues to be addressed to reach sustainability. The group lost momentum as industry’s focus shifted to the child labor issue.
Indeed, for Corporate Social Responsibility departments in the cocoa industry, and for relevant government departments, the primary concern related to cocoa production is social rather than environmental: the issue of child labor (or even slave labor) on cocoa farms has gotten a tremendous amount of media and political attention in the US and the UK, and the industry is under pressure to address this. The US has threatened a boycott of cocoa from Ghana and Côte d'Ivoire if this issue is not resolved by 2008, and industry is responding, notably through the International Cocoa Initiative.
Nevertheless, certain forward-looking companies are moving ahead on environmental issues. Some notable private sector initiatives include: Kraft has an ongoing project to source RA cocoa in Côte d'Ivoire; the seven project
partners are Kraft, the Rainforest Alliance (RA), Armajaro (trader) United Nations Environment Program (UNEP), GTZ, US AID, Kuapa Kokoo, and the Ghanaian fair trade cooperative. It is not clear however, now that UNEP’s project identification form was rejected by GEF, whether the configuration of this project will remain the same.
Cadbury Schweppes has initiated a project with the Earthwatch Institute (Europe) and the Ghana Nature Conservation Research Centre (NCRC) to improve biodiversity levels of cocoa farms in Ghana. The project aims to re-establish cocoa on land once used to grow it, a more ecologically balanced environment that provides a diversified habitat for birds and other wildlife and which increases cocoa yield and boosts farmers' long term financial security. The project is also aimed at creating an ecotourism venue.
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Ecom, a trader who counts Nestlé, Ferrero, and Starbucks among its large clients, is providing training to farmers to enable them to produce cocoa that is socially and environmentally sustainable. See more under Section 5.2.
The large trader ED&F Man has set up a separate division, called Corrigins, that specializes in the specialty cocoa market, including fine flavor/origin cocoa, fair trade, and organic cocoa.
On so-called pre-competitive issues, such as child labor, adequate supply, or good quality, there is cooperation among manufacturers. Therefore, it is reasonable to expect cooperation on environmental issues, if they are of interest to manufacturers.
FINANCE
Cote d’IvoireThe finance needs of cocoa farmers fall into three categories: finance for inputs, consumptive credit, and finance for investment.
Inputs for growing cocoa include pesticides, herbicides, and planting material. A farmer’s annual expenses for such inputs is on the order to US$100. The timing of input purchases relative to cocoa payments generally implies a six- to nine-month term.
Farmers also need consumptive credit, i.e., credit that is not related to production. This could cover such costs as school fees and uniforms, which must be paid for in September – a good three months before the cocoa crop is ready for market. Sometimes needy farmers are forced into unfavorable arrangements with local buyers who provide credit in exchange for a portion of the anticipated harvest.
Cocoa cooperatives need very short-term finance (on the order of a week) for purchases. This is because cooperatives need time in order to accumulate bags in a volume sufficient to make a sale to a buyer, creating a lag between the time the farmer gives the bag to the cooperative, and the time the cooperative has received funds from the buyer and can pay the farmer. As a consequence, some farmers will
Farmers and cooperatives can only borrow from local money markets and are therefore subject to high local interest rates, which can be 20% or more annually in Ghana and Côte d'Ivoire. International traders are able to borrow at much lower international rates. While in principle they can pass on to cocoa growers the benefits of these lower interest rates, in practice it takes several years to build up trust between an international trader and local parties. International traders only offer financing to the few cooperatives they feel they can trust. Pesticide companies also offer some sort of financing to farmers.
GhanaIn Ghana, Cocobod is the sole party buying cocoa from farmers. Cocobod is able to get credit on the international market to cover the short-term finance needs described above. Individual farmers still need input and consumptive credits. The cooperative Kuapa Kokoo has a credit union that offers these services.
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Roundtables and industry groups
Roundtables. The cocoa industry has no parallel to the sustainability roundtables in palm oil, sugarcane, soy or cotton. WWF is exploring the possibility of establishing such a roundtable. Certain manufacturers might be interested others not, for various reasons. Cocoa’s smallholder base forms a challenge, in that it appears difficult for roundtable members to directly affect production practices.
World Cocoa Foundation. Members include six industry associations (ex: Chocolate Manufacturers’ Association) and major chocolate manufacturers and cocoa traders, as well as specialty chocolatiers. The WCF Partnership meetings are held twice a year, alternately in Brussels and in Washington DC. BACP should attend these meetings as they are an excellent networking opportunity. The market changes fast, and the meetings are a good way to keep on market evolution. Based in Washington D.C.
International Cocoa Initiative. Mostly focused on child labor issue. Members include anti-slavery NGOs, Unions, as well as Mars Incorporated, Hershey Foods, Cadbury Schweppes, Nestlé, the European Cocoa Association and the International Confectionery Association (two trade associations representing cocoa processors, trade and logistics companies and global confectionery manufacturers respectively). Based near Geneva, Switzerland.
International Cocoa Organization Main goal is “fostering of co-operation between cocoa producers, consumers and the trade and industry in all sectors.” Members are 40 importing and exporting countries, representing over 80% of global production, and over 60% of global consumption. Administers the International Cocoa Agreement, under the auspices of the UN. Sustainability initiative, created 18 months ago, trying to determine indicators of a sustainable cocoa economy. Based in London.
STCP – Farmer field schools. The mission of the Sustainable Tree Crops Program is to improve the economic and social wellbeing of smallholders and their communities, and ensure the environmental sustainability of tree crop systems. WCF has funded STCP to deliver its Farmer Field School program and related research. They have trained about 17,000 West African farmers.124 Their work is generally acknowledged as good, but with high overheads. Active in Ghana and Côte d’Ivoire.
INAFORESTA. An international voluntary group that includes among its objectives “to decrease or mitigate the negative impacts of cocoa cultivation on forest cover and enhance the contribution of cocoa cultivation to local and global ecological systems.” Members are Conservation International, Mars, the International Institute for Tropical Agriculture, the World Agroforestry Center, and the CATIE. Main contact at World Agroforestry Center, Nairobi, Kenya.
SAI Platform. The SAI Platform was created by the food industry to actively support the development of and to communicate worldwide about sustainable agriculture involving the different stakeholders of the food chain. Members include major cocoa buyers such as
124 www.treecrops.org
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Nestlé, ECOM, Kraft . While the organisation set up an internal workgroup on sustainable cocoa sourcing, cocoa does not seem to be a key priority commodity for SAI and current activities in cocoa are limited. After initial discussions during the BACP program preparation phase a preliminary proposal for cooperation between BACP and SAI Platform focusing on “demand-side activities” for sustainable cocoa was developed by the BACP team and submitted to the SAI Platform Executive Board meeting on 22 February 2006 for discussion (Eventually, the proposal did not receive board approval). However, in follow-up discussions, the SAI Platform indicated that SAI Platform may participate in the creation of a cocoa multi-stakeholder initiative roundtable if convened by IFC/World Bank Group.
List of ongoing cocoa sustainability initiatives
This non-exhaustive list presents some of the sustainability initiatives in cocoa.
The Sustainable Tree Crops Program (STCP) a public-private partnership between industry, producers, researchers, government agencies, public sector institutions and conservation groups. The STCP program’s focus includes work with community-focused groups to utilize the best available technology, create regional marketing and information systems, prevent and eliminate the worst forms of child labor on farms, and identify and promote sound policy options for tree crops, including use of a multi strata approach to planting cacao.125
EPOPA, a project of the Swedish Development Agency Sida, which certifies organic cocoa to IFOAM standards in Bundibugyo, Uganda, where 1800 farmers are registered.
The Talamanca-Caribbean Biological Corridor project, under which shade-grown cocoa production is certified by Ecologica, a Costa Rican NGO, to US and EU organic standards and associated impact on biodiversity is assessed.
APTTA (Associacion de Pequenos Productores de Talamanca) a farmer organization in the Costa Rican Talamanca region certifying small volumes of organic cacao
WWF Brazil, working with the Brazilian Biodynamic Institute, has certified to the Institute’s organic standards cocoa beans grown in Southern Bahia’s Atlantic Forest region by the members of the cooperative Coopasb.
A USAID-funded Uganda Investment in Developing Export Agriculture (IDEA) project, together with Fintrac, a subcontractor to Chemonics, the Ministry of Agriculture, Animal Industry and Fisheries (MAAIF) cocoa team and the newly formed Uganda Cocoa Association to implement a technical assistance package aimed at strengthening the industry. Assistance has included pruning and tree maintenance to bring neglected trees back into production, post-harvest handling, fermentation and grading at the village level to improve quality and introduction of a Code of Practice incorporating basic EUREPGAP principles into production.
125 This program is funded by the United States Agency of International Development (USAID). Partners include Chocolate Manufacturers Association (CMA), American Cocoa Research Institute (ACRI), The Biscuit, Cake, Chocolate and Confectionery Alliance (BCCCA), and Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) GmbH, a German international development organization, the United Nations Development Program (UNDP) Global Environmental Facility, and The International Institute of Tropical Agriculture.
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An Earthwatch Institute (Europe) project with Cadbury Schweppes and the Ghana Nature Conservation Research Centre (NCRC) to improve biodiversity levels of cocoa farms in Ghana. The project aims to re-establish cocoa on land once used to grow it, a more ecologically balanced environment that provides a diversified habitat for birds and other wildlife and which increases cocoa yield and boosts farmers' long term financial security. The project is also aimed at creating an ecotourism venue.
Cacao-ci, the Cote d’Ivoire’s certification website, which reports on what the country is doing in response to the Protocol initiative, including plans for eventual certification of its cocoa producers to international labor standards.
Conservation International work in Brazil and Ghana with UNDP/GEF funding to promote sustainable cocoa linked to conservation and the creation or expansion of biological corridors,
ACDI/VOCA work in Sulawesi funded by USAID the work of the Common fund for Commodities, CIRAD, CATIE, and Cabi
Biosciences on sustainable cocoa production. WCF sponsored projects in Africa:
STCP Pilot PhaseFarmer Field Schools (Cameroon, Côte d’Ivoire, Ghana and Nigeria)Farmers Organization Capacity Building (Cameroon, Côte d’Ivoire and
Nigeria)FLD/STCP/Valuable trees in West AfricaWinrock Vocational Education CLASSE (Child Labor Alternatives through
Sustainable Systems in Education)Agboville (CI) Classe Pilot ProjectIACC-Mars Classe Project expansionIACC-Norway Classe Project expansion
IACC-Hershey IFESH Teachers Development (Côte d’Ivoire and Ghana)Kraft/GTZ/USAID: Market-oriented promotion of sustainable cocoa production (to
be started in Côte d’Ivoire) WCF sponsored projects in Asia;
Success Alliance (public – private funds): reflects a more comprehensive approach to improve farmers’ performance in the sustainable cocoa value chain including making the complex agro-ecosystem relations understandable for farmers; an approach developed together with international IPM teams and local extension services in Asia;
SUCCESS /Prima evolution (Pest Reduction and Integrated Management), FEATI, AMARTA development - Quality focus (Indonesia)
SUCCESS program - Supply chain project for quality standards (Vietnam) Inter-cropping opportunity with coconut (Philippines)Cocoa Pod Borer: pheromones, biodegradable sleeving, rational insecticide use, PNG
awareness program.
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WCF sponsored projects in Latin America:ACCESO: the goal is to improve competitiveness in the cacao supply chain in
Bolivia, Colombia, Ecuador and Peru and increase the number of farming households producing marketable quality cacao.
Farmers Field Schools:ARD: Pronorte project, USAID funded (Ecuador)ACDI/VOCA: SUCCESS Alliance project, USDA funded (Ecuador)INIAP/CIRAD: Cocoa Rehabilitation project, USDA Funded (Ecuador) ARD: CAPP Program, USAID funded (Colombia)ARD: MIDAS / ADAM project, USAID funded (Colombia)Activities to be started in Peru and Bolivia in 2005/2006
Cocoa Germplasm project (CFC/ICCO/IPGRI). This project involves 13 countries (11 producing countries from Africa, Asia and Latin America), with a special focus on improving resistance to pests and diseases through a unique network of field trials. A participatory approach is used.
Producao project (Masterfoods and GTZ): a public-private partnership stimulating cocoa cultivation and using it both to alleviate pressure on a national park in Côte d’Ivoire and improve farmer organization and cocoa quality; a farmer based approach.
Caobisco and ECA programs on diseases and quality (risk analysis). On going projects to improve cultural practices and product quality in an environment friendly way.
FSP Ghana (French Government): regional project to set up profitable and sustainable cocoa farming systems in Africa using a multidisciplinary approach: Agronomy, breeding and selection, physiology, pest management and socio-economics.
Rainforest Alliance Sustainable Cocoa Program, in partnership with Conservacion y Desarrollo (Ecuador) aims at restoring Ecuador’s native cocoa heritage by providing technical assistance to farmers and offering training for producers and processors. A set of sustainable cocoa standards have been established and Arriba Chocolate is the first ever Rainforest Alliance Certified cocoa product available to consumers.
Day Chocolate/Kuapa Kokoo/ CI project in Ghana. The program seek to increase yields of existing crops, reduce pesticide use and diversify farms to ensure maximum shade in buffer zones bordering some of Ghana’s most important protected areas. Farmers participating with Day Chocolate earn a better living and the incentive to continue growing shade cocoa, rather than converting to more detrimental crops such as oil palm.
NCA/UNICEF. The National Confectioners Association a partnership with UNICEF that provides a model for greater access to education for children in Ghana’s cocoa communities. This project is part of the IACCC-Classe program sponsored by the WCF.
Consultancy and Research for Environmental Management (CREM) activities and projects:
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Feasibility of matchmaking between a sustainable cocoa cooperative in Costa Rica, Dutch cocoa processors and the final consumers of cocoa products. A practical analysis has been made of how a sustainable cocoa chain could be set up between Costa Rica and the Netherlands and the opportunities and bottlenecks associated with it. For CBI and the NCDO (National Commission for International Cooperation and Sustainable Development).
Analyses of sustainability and solutions pertaining to the production of cocoa in Ghana. By means of fieldwork and interviews with stakeholders in Ghana, the problems of sustainability in the cocoa sector have been analysed and possible measures have been identified. For DGIS.
Analysis of the sustainability aspects in cocoa chains associated with the Dutch consumer. The ecological, social and economic sustainability of cocoa chains has been charted. In addition, in close cooperation with a large number of stakeholders, an analysis has been made of the measures already taken to solve the bottlenecks and additional measures have been identified that are related to the policy on products and the consumer. For VROM.
Screening of environmental policy relevant to the trade in coffee, tea, cocoa and cocoa products, food ingredients and health foods. An inventory of environmental and health regulations and market trends. For the Fair Trade Organisation.
Dutch Consumer Patterns and their Impact on Biodiversity. In connection with this project, a case study has been done on the aspects of biodiversity in cocoa plantations in Brazil and Ivory Coast.
Dutch land use abroad. A qualitative and quantitative analysis of the use of foreign land associated with their consumption in the Netherlands has been performed for a large number of particularly agrarian products (such as cocoa beans, soja and palm oil). In addition, for a number of case studies (including one on palm oil), an analysis has been made of the socio-economic risks associated with such foreign land use.
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ANNEX 16: THE INNOVATOR FACILITY
The Innovator FacilityThe Sustainability Business Innovator Facility (The Innovator) is a donor-funded multi-year facility, encompassing a large variety of environment and social products and services offered globally. The Innovator is the result of the consolidation of three facilities currently managed by the Environment and Social Development Department (CES) of the International Finance Corporation (IFC) under a program previously called the Sustainable Business Assistance Program (SBAP). The merged facilities are the Corporate Citizenship Facility (CCF), the Environmental Opportunities Facility (EOF) and the Sustainable Financial Markets Facility (SFMF).
Further to the merger of the above facilities, the Innovator provides technical assistance and investments in three main areas of CES's Sustainability Business Innovator group: Cleaner Technologies, Social Responsibility, and Sustainable Investing.
Cleaner Technologies supports innovative business initiatives with a strong potential to increase environmental sustainability, which must overcome the uncertainty associated with new markets, new technologies, and new ways of doing business. This program focuses on innovative solutions to environmental issues including:
• Clean water supply• Wastewater management• Indoor and industrial air pollution• Solid waste management• Recycling• Sustainable energy• Sustainable natural resource use (e.g. ecotourism, sustainable forestry)
The program aims to increase the role played by entrepreneurs in responding to environmental challenges by investing in young environmental sector companies and supportive of cleaner production. The program also makes an impact on IFC's mainstream business strategy by promoting cleaner production initiatives with IFC clients and through the incubation of future mainstream transactions with strong environmental benefits.
Social Responsibility seeks to promote and enhance the responsibility and contribution of the private sector in relation to environmental and social issues in emerging markets. This is achieved through projects in the following areas:
• Local Community Development/Stakeholder Engagement• Labor Practices including occupational health and safety, workplace human rights, etc.• Corporate Social Responsibility (CSR) Policy, Principles and Processes• Social and Environmental best practice pilots and research
Typically, the Social Responsibility program will work mainly with IFC clients committed to addressing CSR in their business activities. Projects with non-IFC clients and sector wide initiatives are considered when they have a larger environmental and social impact on the private sector in emerging markets.
Sustainable Investing provides social and environmental management technical assistance for the financial sector in emerging and transition economies, and provides research and convening around new trends in sustainable finance. IFC works extensively with local partners in each region (including regional technical assistance facilities) to ensure that development and delivery of services can be done locally and appropriately over the long term. Capacity building has been a key theme and the success of the various
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projects undertaken, and approach, was recognized by an independent evaluation team as a role model. Activities include:
• Development of sustainable investment research and service providers• TA for sustainable investment in private equity funds and for financial institutions• Training and capacity building• Investment innovation• Support tools for financial institutions• Promotion of sustainability financial products and best practiceThe program addresses all areas of the financial sector: private equity, listed equity, commercial banking, microfinance and leasing.
Sustainable Energy seeks to develop market-based solutions that promote (i) greater use of renewable sources of energy and (ii) more efficient production, transmission, distribution and/or use of energy. To that end, IFC engages in a variety of ways with the private sector to demonstrate the business opportunities for sustainable energy investment, and to reduce risks and transaction costs that impairs the private sector’s ability to expand markets for sustainable energy. Activities include:
• Market development for sustainable energy technologies to push markets and position IFC ahead of the curve;• Supporting partner financial institutions in developing commercial lending businesses for sustainable energyprojects;• Supporting IFC in developing new investment models to enable IFC investment in sustainable energy;• Assisting IFC investment departments in expanding sustainable energy investments in their core businesses through project identification and technical advice;• Tracking sustainable energy investment in IFC’s mainstream business to support increased developmentimpact in IFC’s business, and• Technology demonstrations in cutting edge sustainable energy technologies.
Biodiversity and Nature-based Markets seeks to increase the role of the private sector in biodiversity conservation and sustainable use by proving the business case for such involvement. Through this program, IFC aims at creating new markets or transforming existing ones in which nature protection is an optimal component of the value proposition, whether by risk mitigation or business opportunity. Activities include:
• Investment in innovative nature-based businesses, or “biobusinesses” (sustainable timber or non-timber forest products, freshwater or marine resources, provision of ecosystem services, etc..);• TA to companies in the field of biodiversity management;• Studies (technical, market, feasibility) of biodiversity friendly markets;• Applied research of financial products related to biodiversity;•Support to private sector led international initiative to define better management practices, codes of conduct (especially commodity markets) and certification systems;• Support to biodiversity offsets creation and management; and• Contribution to policy-making and enabling environment (market –based instruments) in certain countries via public/private initiatives.
ObjectivesThe Innovator seeks to demonstrate the power of the private sector to positively impact social development and the environment by incubating and financing innovative, sustainable development projects in the above areas.