Segmentation of cocoa farming households will be at the core of targeting technical assistance and determining investment readiness of cocoa farming businesses. Cocoaperation will start with a simplified segmentation approach which can be gradually further refined and improved based on piloting, studies and joint monitoring and evaluation. The initial segmentation will use mainly overall farm size as the key indicator for dividing cocoa farming households into different categories (see figure 4).

Simple farmer segmentation for targeting technical assistance at the start-up phase

Under the previous phase of FCIP cocoa trade companies introduced the concept of farm improvement plans. This approach towards providing cocoa farming families tailor-made advise for a sustainable intensification of their farming activities will also be central to the farmer-oriented technical assistance support under Cocoaperation. Based on certain parameters such as farm size, (family) labour availability, age of cocoa trees, farm location (including soil qualities and climate change relate effects on cocoa productivity) and access to markets the cocoa farming family in category B will be advised on cocoa production improvements. Where appropriate the diversification of cocoa-farming systems and other income generating activities can be part of the farm improvement plans.

Figure 5: Different farming business and investment strategies work for different segments

The development of the sustainable cocoa farm improvement plans will be followed up by training and coaching of the cocoa farmers on implementation issues. The training and coaching will cover both agronomic skills and techniques and farming business development. The organisation of the training and coaching services will be a responsibility of the respective cooperative and their associated trade company and/or brand. These farmer support activities will have to be part of a comprehensive strategy also covering financial inclusion and strengthening of the cooperatives (see point 2 and 3 below).

The technical assistance based on the farm improvement plans should enhance the cocoa farmers’  capacities to adopt and invest in farm production improvements. The investment readiness should make them eligible to receive and use credit effectively and improve their farming  business and increase their net income.

Technical assistance for cocoa farming households with a small-sized farm (category C) requires a different approach. The Cocoaperation partners will jointly review existing (pilot) experiences aimed at finding on-farm and off-farm income generating activities suitable to this segment of cocoa farming households. This should form the basis for future technical assistance initiatives, possibly combined with tailor made credit solutions (based on financial and economic feasibility checks).

The lending organisations and other financial institutions active in the cocoa sector have the ambition to improve and expand their existing cocoa lending portfolio and associated financial services (e.g. crop insurance, saving schemes). Their financial products are targeted at the cocoa cooperatives and their members.

Generally speaking the lending organisations face one or more of the following challenges:

• High operational and monitoring costs due to small ticket sizes for individual loans (in the case of debt funding for farmers);
• Weak controls due to limited IT capacity, weak MIS and/or inadequate reporting systems;
• Operational inefficiencies as a result of unfamiliarity and inexperience of staff with the farming sector, paper-based systems, and/or other inefficiencies in procedures;
• Poor risk management due to absence of dependable financial information and key data, especially related to smallholder borrowing and other financial transactions by farmers.

Assistance with digitisation of the credit management systems can be part of the solutions to overcome some of these challenges. Other strategies include improved cooperation between cooperatives and lending organisations on segmentation of cocoa farming households for determining the eligibility and investment readiness of cocoa farming households for different loan products. This could be combined with a system whereby the cocoa cooperatives act as the primary borrower of the participating commercial lending organisations. The cooperatives would then manage the loans issued to cocoa farming families.

For the roll-out and scaling of the cocoa lending portfolio and insurances the IDH Farmfit Fund can also provide (subordinated) debt funding to the lending organisations in (local or hard)  currency and/or guarantees. This will be considered on a case-by-case basis and will require separate due diligence assessments and contracting between the respective institution and the Farmfit Fund.

The main financial products that will be considered as part of the Cocoaperation start-up program are summarised in text-box 1. Currently banks and micro-finance organisations in Côte d’Ivoire are mainly involved with working capital loans for cocoa cooperatives and seasonal loans for fertilizers. More details on these financial products are provided in the annex to this proposal. During the Cocoaperation implementation cycle the portfolio can be broadened based on new insights and requirements in cocoa sector.

The following interim outcomes are foreseen as a result these activities:

• the local financial institutions will provide increased access to short- and medium-term loans for cocoa farmers as well as other financial products;
• the loan repayment times and default rates on loan repayment to the lending organisations for the respective loan products will improve leading to lower interest rates paid by smallholder farmers. This should lead to more affordable levels and reduced costs for smallholders.

Cocoa trade companies and brands will continue to extend technical support to the cocoa cooperatives with whom they have a trade relationship. The technical assistance and capacity building will focus on improving the business administration, management and operations of the cooperative company. The introduction of digitisation of their administrative, financial and business management activities will be an important support strategy. Donor-funded programs such as the GiZ-funded ProFinA may contribute in the form of training and coaching of cocoa cooperatives.

Whilst the TA of the cooperative’s business management capacities may be combined with developing improved and diversified service provision to the cooperatives’ members (e.g. provision of health insurances and other social services), this will not be a Cocoaperation priority.

The capacity building of the cooperative management and upgrading of the operational systems the respective cooperatives will be able to create the conditions for efficient and reliable long-term offtake relations with cocoa traders and improved commercial services for their members. The eligibility of cocoa cooperatives to receive credit for business diversifications and improvements should enhance.

Piloting, monitoring and learning at sector level is the fourth main set of activities of the Cocoaperation implementation strategy. With technical assistance and co-funding support from IDH pilots will be implemented to assess so-called ‘smart mix’ solutions towards sustainable farming system improvements and enhancing income levels among cocoa farming households. The segmentation of cocoa farming households will be part of the pilot design and implementation approach.

The outcomes and lessons generated from the pilots will be combined with monitoring and evaluation of the combined effects of the ongoing partners’ technical assistance and financial support activities. Together this should give the partners insights to make adjustments and further refine, expand and diversify their respective activities and further improve the internal coordination and alignment.

Quarterly partnership meetings will be convened by CCC and IDH to discuss priorities, progress and outcomes of the different pilots and monitoring activities. The sharing of knowledge and insights is expected to contribute to more diversified solutions and increased cooperation and alignment in the sector.