Foreword from Joost Oorthuizen, IDH Executive Director

Fearless partnerships will save the cocoa sector

IDH has been engaged in the cocoa sector for over eight years. Expenditure and commitment in the last five years have been huge: EUR 15 million in public funds, matched by EUR 37 million in private-sector funds. It has been an intensive journey spanning the main cocoa-producing countries in Africa and Asia (Côte d’lvoire, Ghana, Indonesia, Cameroon, and Nigeria).

Sometimes, the road has been bumpy. Sometimes we have moved two steps forward only to find ourselves going one step back. Indeed, we have experienced enough and learned enough with our key partners that we could write several books on the cocoa sector: its challenges, its needs, and the innovations that will drive its future.

But instead of writing books, we have distilled our key lessons and key innovations into a timely and valuable resource: Flourish.

This learning hub looks back at the innovations we’ve prototyped, and how much the cocoa sector has evolved, since the Cocoa Productivity and Quality Program (CPQP) launched in 2011. It reflects on the speed with which change and innovation have been injected into the sector. And it represents a chance to stand still and take stock of the outcomes—to take a breath and survey where we have come from, and where we are now, before we look forwards again to where we are headed.

The innovations made during CPQP are vital. For soil fertility, for farmer financing, for creating Service Delivery Models that deepen the understanding of the business case for working with farmers as clients. Cocoa-sector stakeholders have been helped to better measure yields. Collect and use reliable data. And to build, or take advantage of, innovative finance products targeted to ‘fertilizer-ready’ and finance-ready farmers.

We, as IDH, are a small, agile accelerator. This is our role. With limited funds, we catalyze for big impacts. We drive innovations that, once they are proven, can be adopted and scaled by industry players and public-sector organizations. From co-ops to governments, banks to microfinance institutions, our mission is to deliver the tools that will enable a shift towards a more profitable and sustainable life for the farmer: creating a balance between the ecology of cocoa-producing areas, their agriculture, and the communities that depend on them.

Flourish is a deliberate effort to further influence thinking and best practice in the industry. It is primarily written for our partners. But it is also written with a wider audience in mind: governments, investors, researchers, and anyone interested in learning how the cocoa sector is innovating to combat poverty and invest in a sustainable supply chain. We are reminded, in the news, of the poor situation of the cocoa farmer. But in this hub we’d like to share the reality behind the headlines. The serious efforts of the industry to invest in better fortunes for the cocoa farmer. The obstacles faced, and the innovations developed.

As we explore what has worked, and the challenges the cocoa farmer’s situation still presents, we have tried to write honestly. We have laid out the facts of our experiences and the experiences of our partners. We have told the story of five years on the ground in the cocoa sector, and the stories of the partners that have joined us.

Our story is, by definition, incomplete. And it is subjective. If you read this publication and disagree, please get in touch so the learning process can continue. We are proud of the progress being made in the cocoa sector: and we look forward to continuing to catalyze change in the future as we move forward into the Cocoa Learning and Innovation Program (CLIP).

Fearless partnerships will save the cocoa sector. We must deepen the role of other industries. And we must cooperate as cocoa-industry players, producing-country governments, and civil-society organizations. CPQP has led to the development of new approaches, and a stronger investment strategy that ensures bankable projects with the potential for upscaling. It has planted the seed: together we can make it Flourish.

The Cocoa Productivity and Quality Program (CPQP). Five years of partnerships. Five years of stories.

The story of the Cocoa Productivity and Quality Program (CPQP) is one of innovation, challenge, and evolution.

When CPQP began in 2011, it was clear that the cocoa sector’s sustainability strategy was facing serious challenges. Aging trees, poor soil quality, and a younger generation in danger of disengaging from cocoa production represented an imminent threat to an industry that had struggled to develop significant productivity-per-hectare increases.

IDH’s previous cocoa strategy—the Cocoa Improvement Program (CIP, 2008–2012)—had focused on supporting cocoa farmers in the implementation of Good Agricultural Practices (GAP) through certification-led training. During CIP it became clear that training was not enough. Farmers lacked access to a complex and interdependent web of inputs including finance, fertilizer, and crop protection: this lack of access affected their ability to use GAP effectively.

In order to bring the inputs to the farmers, the sector needed to organize around an agenda that went beyond certification-led training. Innovation was needed to improve the quality of cocoa, heighten productivity, and drive the professionalization of farmers and cooperatives.

Our journey has delivered key lessons on key innovations. Much has been tried and much has been integrated into ongoing business. Now it is time to scale.

The productivity package: the engine of CPQP

A ‘productivity package’ of fertilizer, finance, training, and other necessary inputs was developed for farmers—offering a real promise of change. Making the productivity package accessible to cocoa farmers was the focus of CPQP. The program became a breeding ground for innovations geared towards greater accessibility, many of which have become an integral part of the model by which the private sector interacts with farmers. There is a sense of increased responsibility on the part of private-sector players, which is manifested in the relationships they develop with the smallholders on whom they depend—and who, in turn, depend on them.

CPQP has begun to redefine the ways in which finance, training, and other inputs are provided for maximum impact. CPQP was also a space in which Service Delivery Models (SDMs) were analyzed and protoyped to cost-efficiently distribute inputs to tens of thousands of small-scale farmers in remote areas. And the program saw real headway made in creating tailored finance solutions for smallholders—empowering them and transforming them into entrepreneurs with a positive and profitable track record.

Through the commitment of public and private partners, CPQP succeeded in convincing the private sector to go beyond a one-size-fits-all certification approach. CPQP has also been the starting point for the ‘farmer-centric’ approach: in which farmer profitability is a pillar on which a sustainable cocoa sector may be built. But the soil of the industry is still being turned. For improvements to really take root and flourish, we must build on the successes of CPQP: ensuring that the productivity package is accessible, affordable, and attractive to the next generation of cocoa entrepreneurs.

We are using the same language in terms of a productivity package and in terms of training farmers . . . we are more aligned, the industry is more aligned, and not only in terms of messaging but in terms of ways to address the issues.

Chapters 1–5: The productivity package

These chapters explore the cornerstones of Good Data and Service Delivery Models, and the package elements of Finance, Fertilizer, and Training. Just as the elements of the productivity package are interdependent, each relying on the other, so these chapters are best understood as parts of a whole.

• Good Data: newly prototyped models for better data collection are essential for developing finance and training packages and Service Delivery Models.
• Service Delivery Models: developing relationships in which farmers are seen as clients paves the way for access to targeted services.
• Training: moving beyond certification-based training opens the door to farmer-centric training and coaching systems.
• Finance: innovative finance creates sustainable banking environments for funding productivity inputs that improve smallholder farmers’ production and livelihoods.
• Fertilizer: it is vital that cocoa farms are regenerated and rejuvenated: access to fertilizer is a critical component of this.

Chapter 6: Moving forward

Discover where we are headed next. The Cocoa Learning and Innovation Program (CLIP) aims to advance the innovations of CPQP, building on the good work of the program to achieve impact through farmer-centric initiatives.

Partner stories

Hear directly from the cocoa-sector partners involved in CPQP. Discover their innovations, explore their challenges and successes, and learn from their experiences during the program.

The engine of the productivity package

IDH’s Cocoa and Productivity Quality Program (CPQP) began with the assumption that the cocoa sector had robust methods for data collection and analysis in place. This proved to be not entirely the case, and CPQP evolved to promote a vision of improving business practices through the collection of ‘good data’: data that gives cocoa producers, processors, and manufacturers the ability to track progress and make informed strategy and investment decisions. Data that creates knowledge, enabling more successful systems to become embedded in the supply chain.

The journey towards good data became a vital ingredient in the productivity package. Good data gives the sector the power to assess whether current efforts are likely to be effective in securing future supply. When good data is available, the quality of management in the cocoa sector is transformed: the acceleration and upscaling of profit- and yield-focused interventions are unlocked. Informed investments are made possible by access to reliable information, and effective training programs can be designed using meaningful impact and performance figures. It is only when you can rely on good productivity data that the goal of moving farms from 500 kg/ha to 1,000 kg/ha becomes a realistic ambition.

IDH’s analysis of Service Delivery Models (SDMs) perfectly illustrates both the importance of good data and the need for an ongoing effort to secure it. The research showed that companies lacked data to validate key assumptions on the commercial viability of SDMs: and, in creating a data-driven analysis of SDMs, began to inform the design of new SDMs that could increase farmer profitability. The key: trustworthy data, which can be meaningfully compared from project to project and co-op to co-op.

Good data is the power to track progress: but it is also more. It is the power to create systems that work.

See also: Service Delivery Models, Training

Data diversity: the challenge of poor consistency and reliability of data

Data diversity has been a major challenge for the process of shifting cocoa-sector sustainability programs away from CSR and into the core of sector strategy. CPQP began in a landscape of disparate data-collection methodologies, in which yield was measured using unreliable and un-relatable proxy indicators (e.g. measuring volumes of beans procured or counting the number of pods on trees on demo farms). The creation of meaningful data (capable of powering the design of SDMs) was forestalled by an over-reliance on available company data (rather than independent review). And the use of assumption—for instance in delivering productivity figures per hectare based on an estimated farm size—was a major stumbling block for reliability. In several instances, partners were forced to derive their numbers from the assumption of an average farm size, which could be adjusted over time to become more accurate as more farms were actually mapped.

In 2013, IDH made an inventory of the ways in which key partners were collecting yield data The diversity of approaches discovered outlines the limited validity of the data, both as a metric for measuring individual projects and as a measure capable of comparison with other projects. Swisscontact, for example, used baseline, mid-term, and end-of-project surveys, which were often reliant on recall rather than measured data. Mars used yield data from demo plots as a proxy—an approach that is unable to account for farmers only partially adopting advised practices. And Barry Callebaut based its yield data on the volume of beans procured divided by farmer numbers, validated with a sample of control plots: a method that has limited value as farmers often sell to multiple traders and vary the percentage of cocoa sold year on year, making it extremely difficult to accurately assess productivity.

The challenge of improving data in the cocoa industry is ongoing. Inconsistent, unprovable, and unreliable data has limited the ability of projects to quantify progress on yield improvement, to compare data between projects, or to compare projects from one year to the next. And yet the challenge has generated responses that are beginning to bear fruit. The Farmer Field Books (FFB) approach, brought to the cocoa sector by the Common Data Management and Collection Protocol, and complementary initiatives such as the World Cocoa Foundation’s CocoaAction targets, are changing the landscape of data collection in the cocoa sector.

See also: Service Delivery Models, Training

Farmer Field Books: a method for better data

In 2013, IDH supported the adoption of FFB in the cocoa sector. The protocol is designed to provide information on four impact/outcome indicators: yield, farm income, diversification, and loyalty. It is a sample-based methodology that relies on self-reporting, with farmers keeping track of their income/expenses and yield.

For CPQP, the anticipation was that FFB would provide IDH with reliable impact data and generate information relevant to cocoa companies aiming to elevate profitability and yield. In Ghana, Agri-Logic is assisting ECOM ECOM Explore ECOM's progress here.
Read more and its partners to implement the protocol with around 1,075 farmers across 43 districts. Farmers are keeping daily records of all their activities, investments, and outputs. Agri-Logic has trained ECOM management and staff on implementation of the protocol, as well as on farm-level data analysis. Analysis of the first year’s data is in progress.

Self-reporting is central to the FFB approach. Consistency is ensured through standardized yield measurements: farmers keep weekly track records of everything that goes into the farm, and everything that comes out of it. Data is collected from farmers every two weeks and digitized in the FFB software. During the visit, guidance and oversight are provided to ensure accurate record keeping.

Every year, farmers receive profit-and-loss statements, delivering quality information on inputs, labor, costs, and sales (information is delivered in total and per ha or tree for their farm). Insight on costs, cost allocation, turnover, and profits is a powerful tool enabling farmers to optimize their investments. Reports are also compiled for farmer groups, and a workshop is organized to interpret results and help farmers apply these insights to farm management. In a group setting, results obtained via the FFB model allow meaningful comparison between peers, enabling farmers to learn from each other in a way that previous, inconsistent data reporting systems could not have allowed. The workshops use innovative techniques to help farmers visualize the performance of their farm: a scatter plot (with productivity on one axis and costs on the other) is turned into a ‘physical graph’, in which farmers stand in a field on the spot that corresponds to their location on the graph. Not only does the workshop make it easy to see who is achieving the most profitability (most yield with lower costs), or whose crops are thriving: it also represents an opportunity for the farmers to learn from these outliers.

At the company level, analysis reports provide a better understanding of suppliers. They also open up new possibilities: for instance, the ability to fine-tune crop forecasting, gain insight into the effects of project interventions, and delve into correlations between farming practices and yield/income. Comparison with other companies, anonymous or otherwise, also becomes more powerful thanks to the better recording of data.

Currently, IDH is looking at how the generally positive experience with the FFB method can be integrated into the reporting framework of the Cocoa Learning and Innovation Program (CLIP). Within the last five years, major investments have been made into generating good data in the cocoa sector (see Complementary approaches: major cocoa-sector investments in better data, in this chapter). The FFB approach can be complementary to these data-collection methodologies as it provides robust, sample-based impact data on yields, diversification, and income that can be linked to outcome indicators such as adoption rates.

See also: Moving forward

Explore partner story: ECOM ECOM Find out more about ECOM’s use of the Farmer Field Books approach.
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Complementary approaches: major cocoa-sector investments in better data

Over the last five years the cocoa sector has made major investments into generating more reliable data. These systems of data generation are complementary to the Farmer Field Books approach: together, they represent a new way of looking at the key metrics of progress and growth in the cocoa sector.

CocoaTrace – this digital program-management system was developed in 2011 by the Sustainable Cocoa Production Program (SCPP) managed by Swisscontact in Indonesia. It was outsourced to CocoaTrace, an Indonesian start-up business (http://cocoatrace.com) in 2013. Its software-based model captures data on all farmers under SCPP and provides access to all program stakeholders. It creates transparency on all levels, giving the ability to track individual farmer details (e.g. by GPS data or training attendance).

GeoTraceability – set up by Armajaro (now ECOM Trading) to provide technical solutions that increase the visibility of suppliers and products in complex supply chains—such as data-collection tools, traceability systems, and online data hosting services. These software solutions provide organizations with the ability to know what is happening within their supply chain, to understand the impact of the activities occurring within their supply chain, and to monitor and evaluate their interventions.

CocoaAction – the World Cocoa Foundation (WCF) is aligning the industry around better measurement of progress for sustainability in the cocoa value chain, including measuring progress on farmer productivity and community development. The WCF carried out measurement and evaluation workshops and conversations with a wide range of cocoa-sector players. A common reporting framework was built to align companies on a common language as well as on data collection methodologies and criteria. The aim is to ensure that results data can be aggregated and assessed against CocoaAction targets. A comprehensive monitoring and evaluation guide was released in Feb 2016, which includes non-binding recommendations and requirements on methods and tools for data collection on CocoaAction projects.

COSA – The Committee on Sustainability Assessment (COSA) is a consortium that develops standardized measurement approaches with cocoa-sector companies. Periodic measures are taken on a subsample of farms on an annual or biannual basis. COSA’s socio-economic indicators are employed in either direct farmer surveys or focus groups, and are tailored in their degree of robustness depending on the context. The indicators include a range of revenue and cost metrics, combined with measures of economic risk and resilience.

SCOPEinsight – this independent rating agency assesses the business potential of farmer organizations in agriculture, dairy, and aquaculture in developing countries. Its assessment tools provide insights into the level of professionalism of farmer organizations, and help companies to improve the effectiveness of service delivery to farmer organizations. SCOPEinsight assessment also empowers farmer organizations to meet market expectations, and connect to the right business partners.

Explore partner stories: ECOM, Swisscontact

The next steps in the journey to better data

The first experiences with the FFB tool are positive and confirm that the approach is a viable solution to obtaining reliable data. As such, this will be one approach taken forward under CLIP. IDH also plans to explore a collaboration with Mars, in which Farm Development Plans will be used to collect FFB data. Farm Development Plans are used to support the farmer in investment decisions (both in terms of time and of money): to complement FFB with Farm Development Plans would enable farmers to fuse planning and performance evaluation.

The momentum is building, and investments in reliable impact data are beginning to carve out a path to a more sustainable cocoa sector. However, the lack of data available is still a problem. As we move forward into CLIP, it is time to focus on the mechanisms by which we are going to achieve good data across the board. By collaborating with partners committed to innovation and critical thinking, we can drive the creation of robust data-collection and interpretation mechanisms. Good data can be turned into real opportunities for improving systems of finance, fertilizer access, and SDMs.

See also: Moving forward, Service Delivery Models, Training

CPQP in the field: partners working towards better data

Cargill, International Finance Corporation, and SCOPEinsight: improving the business skills of co-op leaders in Côte d’Ivoire

In 2014, Cargill, the International Finance Corporation (IFC), and SCOPEinsight established a long-term partnership to assess and improve the business skills of 300 cocoa cooperative leaders in Côte d’Ivoire. Cocoa cooperatives in Cargill’s supply chain were screened and segmented based on their professionalism and business performance: as a result Cargill’s Co-op Academy training curriculum was improved. 43 of the assessed cooperatives successfully secured a commercial mid-term loan from a local bank, for the lease of new trucks for cocoa bean transportation.

Explore partner story: CargillCargill Explore the Cargill Co-op Academy here.
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ECOM: sowing the seeds of data improvement in West Africa

In 2016, West African farmers were surveyed by the ECOM data collection team, using materials developed in close partnership with the Committee on Sustainability Assessment (COSA). 80,000 farmers in the supply chain (from a total of 120,000) were asked to complete a questionnaire designed to capture data points that would provide a more nuanced understanding of farm management practices. Every fifth farmer was interviewed in depth to discover where inputs are purchased, and whether service delivery is satisfactory. Follow-up surveys will be carried out annually to track progress over time.

Other methodologies are being used to assess the best way to collect accurate data on specific metrics. For instance, Farmer Field Books, which rely on bi-weekly data collection, are used to provide more accurate information on variables such as costs and income. Breaking down the costs for different strategies against the income earned also helps farmers to start questioning the effectiveness of their own investment activities.

Explore partner story: ECOM

Service Delivery Models: treating cocoa farmers as clients

Service Delivery Models (SDMs) are supply chain structures through which the productivity package elements of finance, training, and fertilizer can be delivered to smallholder farmers. The more efficient the supply chain structures, the greater the potential to improve farmer performance and sustainability.

There is a significant gap between modern agribusiness in developed economies—which is characterized by professional service delivery to the farmer supply base—and agribusiness in developing and emerging economies. The challenges are many. Markets in undeveloped economies are less robust, and public structures for service delivery either don’t exist or they don’t function adequately. Services provided by traders and exporters are often not financially sustainable because SDMs are not generally perceived as core business. Instead, traders and exporters have been dependent on funding by public donors such as IDH in order to deliver their services. Except for reputational benefits, or the creation of farmer loyalty, brands have found it challenging to identify the return on their investment—whether they are boosting or securing the supply of cocoa. However, processors, traders, and other originators of agri-commodities have begun to initiate change.

Over the last five years, we have seen a paradigm shift taking place in the way companies deal with smallholder farmers as (potential) clients of services rather than beneficiaries of publically funded inputs. Stakeholders in the sector have begun to shift the focus away from farmer support programs, primarily funded by donors, towards service delivery as models that are financially viable and, ultimately, will no longer rely on subsidies. Through a better understanding of SDMs, some value-chain players in agri-commodities are even beginning to see service delivery as core business. This shift in perspective is enabling cocoa-sector players to transform the support they offer to the farmers who grow their crops.

As the cocoa sector has only recently started down the road of seeing SDMs as core business, there is still some distance to travel. As the search for best practice continues, a vital question remains: how to make the market pay?

Challenge and evolution: the Cocoa Fertilizer Initiative and the shift from farmer support to SDMs

The initial focus of CPQP was to ensure that farmers had access to all the components of the productivity package. However, little attention was paid to how to deliver these components. The services included in the package were generally not organized as part of a system and were operating as separate entities that provided basic ‘farmer support’.

An opportunity to investigate the business dynamics of the various farmer support programs was presented by the work of the Cocoa Fertilizer Initiative. The Initiative was funded by the World Cocoa Foundation (WCF), Le Conseil du Café-Cacao, IDH, and fertilizer suppliers and was implemented in partnership with IDH. It collaborated closely with CocoaAction, a strategy set out by the WCF. The Cocoa Fertilizer Initiative aimed to identify and deliver fertilizer to 200,000 fertilizer-ready cocoa farmers in Côte d’Ivoire by 2020. Fertilizers are a vital part of holistic productivity packages tailored to the national, regional, and local challenges of soil fertility. Fertilizer is a significant investment for smallholder farmers and it is risky because it does not guarantee a higher yield. The Cocoa Fertilizer Initiative identified that farmer support programs were not enough, and clearly underlined the need to shift to innovative ways of financing fertilizer for farmers.

Balancing the investment in fertilizer with a return for the farmer that is both high enough and secure enough is one of the most prominent challenges faced when constructing a viable service delivery model. As CPQP progressed, it became apparent that effective SDM design could mitigate risk for farmers, impacting directly on commercial viability and having direct consequences for farmer productivity. The challenge was to identify viable strategies that enable farmers to invest in fertilizer—without imposing impossible risks on cocoa-sector players or financial institutions. Insufficient sales and poor repayment by farmers comprise a potential double loss for a lender, on both credit provided and the volume of beans, as a defaulting farmer is likely to sell their crop to a competitor. In order to better understand the mechanics of SDMs—what kind of package enables a co-op or farmer to become ready for investment, what kind of SDM is capable of scaling and maximizing its investment—it was necessary to generate better data.

See also: Fertilizer, Finance, Good Data

Farmer profitability: the driver of efficient SDMs

Profitability is a touchstone of efficient SDMs. Services that have a positive effect on farmer profitability increase the likelihood of an SDM’s success: therefore it is important to take the overall farm system and cash flow needs of farmers into account when designing services.

A workable finance model is the key mechanism by which an SDM is successfully introduced (see Challenge and evolution: the Cocoa Fertilizer Initiative and the shift from farmer support to SDMs, in this chapter). To increase the probability of successful service delivery, CPQP partners have begun to identify SDM elements that require blended finance or subsidies to continue. Modeling the timelines of specific services to identify the stage at which they are likely to reach sustainability can help define ‘tipping points’ for different types of finance solutions.

The search for better data: presenting the business case for SDMs

In 2014 IDH initiated a systematic, data-driven approach to understanding and improving SDMs. In collaboration with NewForesight and KPMG, IDH developed a modeling tool to show how SDMs work. The tool encompasses what works, where, and why—and tackles how to improve the performance of SDMs by optimizing the model. The analysis provides information on the cost-effectiveness, scalability, and financial viability of SDMs at the investor, service provider, and farmer levels.

Risks and opportunities are identified and knowledge on the key levers for optimizing SDM performance is improved. Value-chain investors (cocoa buyers) and service providers are able to develop cost-effective SDMs through shared insight into the models that have worked for others. Farmers are exposed to the delivery of services that give a real chance of better quality of life and higher productivity. They also become (through increased transparency of information) better informed on whom to work with. And investors and other sector stakeholders are given access to packaged SDM efficiency data, which enables the informed creation of partnerships.

The importance of reliable data, which is explored in detail in the chapter on Good Data, cannot be overestimated. At the start of CPQP, IDH assumed that companies had extensive data and modeling knowledge on the costs and benefits of their programs. The SDM case analysis, however, showed that companies lacked data to validate key assumptions on the commercial viability of models. Trustworthy data, which can be meaningfully compared from project to project and co-op to co-op, is a core component of good SDM design.

See also: Good Data

The future of SDMs: rising to the challenge

The challenge of SDMs, like any business model, is that they need to benefit everyone. Farmers must benefit from receiving services, service providers need to be able to make a margin, and those covering the costs (farmers, service providers, investors) must be sure to get value for their money.

Through CPQP, IDH invested in service delivery to farmers with the expectation that the services would continue without external support at the end of the program. However, the lack of a holistic evaluation of delivery models originally limited the ability of IDH to assess the financial sustainability of its investments. In creating the SDM tool with NewForesight, IDH has gained insights into the current sustainability of SDMs, as well as insights into the future sustainability of SDMs and where best to invest.

The SDM analyses make a clear case to focus on income rather than just yields, as not all improved yields come with a positive return on investment. IDH is in the process of establishing a dedicated SDM Innovation Lab to develop and implement innovations in service delivery models with selected partners. As the learnings from CPQP inform the development of CLIP, we need to use better data to create targeted SDMs that have a real chance to increase farmer profitability. The search continues for services delivery models that support farmers and their families to produce cocoa in a flourishing community.

See also: Good Data

CPQP in the field: partners developing Service Delivery Models

PACTS and Advans CI: empowering co-ops through SDMs

PACTS found that farmers needed more support to be able to produce sufficient quantity and quality of beans. In response, the PACTS stakeholders proposed that fermentation centers be transformed into service delivery hubs that could meet farmer needs more effectively by providing a broader range of services (including access to planting material, access to fertilizer, and more effective training).

IDH introduced Cémoi (one of the three component companies of PACTS) to Advans CI in 2015, and farmers started to access credit for the direct purchase of fertilizer from input suppliers. IDH and NewForesight used the SDM tool to analyse service delivery through the fermentation centers (the SDM analysis focused on Cémoi’s investment in PACTS and did not reflect cost-benefits of Blommer or PetraFoods, the other companies in PACTS). The study provided PACTS with quantitative data on the return on investment of the model, which clearly showed the positive impact of the project on farmer revenue. It also enabled the project to demonstrate to co-ops that the project model provided a higher income for them and for farmers.

Explore partner story: PACTS PACTS Explore the PACTS Service Delivery Model.
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Mars: Cocoa Development Centers, Cocoa Doctors, and Cocoa Village Centers

In 2010 Mars committed to achieve certification across its supply chain by 2020, to address low productivity and aging farms, and to accelerate positive social and environmental changes. They also recognized that beyond-certification work was required to reach yields of 1,000kg/ha. Mars built a network of Cocoa Development Centers (CDCs) across West Africa and Asia, in partnership with international donor agencies, governments, and suppliers. The aim was to establish a private extension system that focused specifically on cocoa and promoted a ‘package of interventions’ for farm rehabilitation: including planting material, appropriate inputs (especially quality fertilizer), and training of farmers on agronomy and business.

CDCs serve as distribution and training hubs, which provide support to selected farmers/business operators within communities who are trained and coached as Cocoa Doctors (CDs). Each CD runs a small independent business (a Cocoa Village Center or CVC) and delivers agricultural training as well as access to good quality plants, fertilizers, and approved pesticides. Enterprising farmers thus have the ability to become part of the SDM, making a business out of generating success for other cocoa farmers: while at the same time increasing the number of certified farmers.

Mars has now expanded the agronomic training of Cocoa Doctors to cover intensive business skills such as marketing and management. In addition, the yield target of 1,000 kg/ha that was set under CPQP has been revised upwards to 1,500 kg/ha to ensure that farmers can make a reasonable living out of cocoa and allow them to invest in the farm: including investment in payment for services.

Explore partner story: Mars Mars Find out more about Mars’ CDC approach.
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The Cargill Co-op Academy: creating strong, professional organizations to deliver services to farmers

Cargill has long seen co-ops as the solution to successfully going beyond certification. The company believes that creating strong, professional organizations able to deliver services to farmers is the best vehicle for empowering large numbers of farmers in a sustainable way. In 2013, Cargill launched its Co-op Academy after a long period of consultation and development with partners such as TechnoServe. Academy training is structured as a mini-MBA program for Executive Management and members of the Board of Directors, combining 28 days of intensive classroom training with a year of personalized on-the-ground coaching.

Because of the investment already made in training and professionalizing the system of co-ops, Cargill is able to develop rapidly responsive partnerships with various companies that offer services for co-ops to deliver to farmers. Each program can be delivered immediately at scale and without additional cost. The first partnership was with Syngenta, which delivered the biggest crop protection program in Cote d’Ivoire without any additional investment from Cargill. Cargill designed a comprehensive program in which Syngenta provided financing and training to farmers and set up demonstration sites to prove the quality of their products, while Cargill used the large scale of the operation to negotiate an attractive price for farmers.

Through the Co-op Academy, Cargill has focused on supporting the transition of co-ops from buying stations into strong service providers capable of presenting excellent opportunities to their members. This approach has led to the professionalization of 100 co-ops and there is now wide acceptance in the cocoa sector that working through co-ops is a successful strategy.

Explore partner story: Cargill  Cargill Explore the Cargill Co-op Academy here.
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Barry Callebaut: the journey towards increased revenue streams

As the concept of SDMs was reconceptualized during CPQP, it triggered a significant reflection process in Barry Callebaut. This leading manufacturer of high-quality chocolate and cocoa products began thinking about the services farmers require, the gaps in the market around service delivery, and the methods by which service delivery could be made viable.

Barry Callebaut and its latest acquisition in Côte d’Ivoire, Biopartenaire (a private local company specialized in sourcing traceable and sustainable cocoa from smallholder farmers), operate two distinct models of cocoa production and have a particularly close relationship with unorganized farmers. Biopartenaire supports 30,000 such farmers, who have limited or no direct access to value-chain services and benefits such as training, planting material, inputs, markets, micro-credit and loans, and bargaining power for prices. This has enabled Barry Callebaut to observe and better understand the challenges that cocoa farmers face.

The original focus for Barry Callebaut was on long-term sustainability of cocoa supply. IDH’s SDM analysis work highlighted the contribution of effective service delivery to meeting this objective: as a result the company redesigned its SDM in Côte d’Ivoire, aiming to make it more commercially viable while at the same time delivering effectively to farmers. The SDM is designed to generate revenue streams through sourcing activities rather than through donor funding—for example by farmers paying for the services they receive. For this to work, farmers need to be convinced that it is worthwhile for them to pay for the services.

Viewing farmers as clients, and not simply as suppliers, requires a different approach. Barry Callebaut has embarked on a journey in which the provision of quality of inputs and timely advice and support (such as that provided by Biopartenaire) are explicitly designed to generate predictable yields and sufficient additional income to pay for services. This is challenging and requires experimentation, but Barry Callebaut is working to convince farmers that the process is worthwhile by providing high-quality services that translate into direct benefits.

Explore partner story:   Barry Callebaut Barry Callebaut Find out more about Barry Callebaut’s Service Delivery Model here.
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The challenge of achieving uptake

Farmers’ lack of knowledge on Good Agricultural Practices (GAP) lies at the heart of many challenges in the cocoa sector. CPQP has aimed to build knowledge of GAP at farmer level through relevant and accessible training initiatives that improve the efficiency, ‘bankability’, and sustainability of cocoa production.

The key components required to increase yields of cocoa beans are generally well understood: the use of appropriate planting material that has high yield potential, implementing the right inputs at the correct time, and committing to good farm management. The problem lies in whether these practices are taken up by farmers after attendance at a training session. As CPQP progressed, it became clear that training alone (such as the practices promoted in Farmer Field Schools [FFS]) was insufficient to deliver uptake. Both the quantity and quality of adoption has been lower than expected: furthermore, farmers tend not to adopt all three key components at the same time. Some are reluctant to implement them even when all the necessary inputs are made available to them.

The reasons for weak adoption of core practices by smallholder farmers remain largely unclear. Some companies have concluded that adoption is not about technical competency or even access to inputs and finance. Rather, farmers tend to make decisions when they trust that the information and advice provided is reliable and attractive enough to make a long-term (10–20-year) investment. In an industry in which the reality is that most farmers struggle to plan more than one year ahead, motivating such an investment must be the focus of productivity strategy. The question remains: how can we make uptake attractive for farmers working in some of the world’s poorest economies?

The limitations of traditional training

Under CPQP, partners invested in existing, traditional extension approaches as well as more learning-oriented approaches such as FFS. Training has generally been delivered to large groups of farmers and the same curriculum repeated from one year to the next. The curricula used have differed across projects, and there has been a large variation in the number of modules used per curriculum.

Due to the high numbers of farmers involved, training is a big cost driver of service delivery (25 % of costs). Costs of training have varied between USD 4 to USD 38 per farmer, with an average of USD 20 per farmer. On aggregate, around USD 100 million per annum of public funds have been spent on training by the cocoa industry to achieve certification.

Tracing the effectiveness of such significant investment has not been easy. A 2016 study on Service Delivery Models conducted by IDH concluded that there is often no correlation between the level of investment in training costs and the impact on a farmer’s profitability. The truth is that training only has an impact when good practices are put in place at field level. For training to be an effective investment, our central aim must not simply be knowledge delivery, but the promotion of adoption rates and increased availability of inputs.

See also: Service Delivery Models

The evolution of good training: the shift towards farmer-centric learning

Cocoa-sector players have begun to understand that farmers need a training package that encompasses a range of additional services designed to help maximize benefits from inputs. It is through an overall productivity package that return on investment is likely to be secured.

In other words: the industry needs to provide motivation and services to farmers if it wants them to adopt best practices. For instance, farmers need to secure a good price for their beans and to receive appropriate services in order for them to dedicate time and energy to their cocoa farm. Competition between cocoa and other commodities (e.g. palm oil and corn) is high. Farmers need to be fully integrated into supply chains that provide tangible benefits in order to keep the dropout rate low.

To address the challenge of poor adoption of training or trained practices, many companies have initiated stepped changes to their training strategy. The ‘one size fits all’ GAP training for certification (traditionally delivered through FFS) is increasingly being seen as an initial foundation for engagement with farmers rather than a full training package in its own right. Moving forward, GAP training becomes a platform from which different farmer needs and interests are identified: the next steps in the training strategy aim to maximize impact by teaching farmers in a more focused and farmer-centric way. By addressing the issues farmers both want and have the capacity to be trained on, adoption rates are expected to rise. Non-industry, beyond-certification subjects (such as training on HIV/AIDS and the generation of alternative income) have, for example, been reported to improve attendance—a learning passed from the IDH Tea program to the CPQP.

See also: Service Delivery Models

Clustering and selection: improving the focus of farmer-centric training

Farmer-centric or ‘follow-up’ (from GAP) training should work best when it is targeted to farmers who are specifically interested in individual subjects or techniques. Clustering increases the efficiency of follow-up training by grouping farmers around training material from which they will receive real benefit. For example, farmers who are willing and able to make investments in their cocoa farms are invited to work in intensification.

Often, self-selection mechanisms are used to filter in farmers who have the ability to commit to increasing productivity: such as the capacity to provide an upfront investment. Or selection criteria are introduced to determine whether farms and farmers are ready to benefit from the productivity package (see The fertilizer-ready farmer: the anatomy of a good investment in the Fertilizer chapter).

Improved attendance, however, is not the same as uptake. The question remains the same: how do we get farmers to apply the practices they learn in training, in the field? One potential answer—coaching—is being tested by several companies. From Jan 2015–June 2016, IDH co-financed pilot coaching programs with Barry Callebaut, ECOM, Mondelēz, and Cémoi (within the context of the Cocoa Fertilizer Initiative). The approach, which was also piloted by Cargill on a larger scale (see Cargill: the shift from training to coaching, in this chapter), is now being scaled up. Its combination of targeted selection, farm development planning, and ‘big picture’ training issues will make coaching an important element of future service delivery: results-oriented and tailored to individual farmer circumstances and needs.

See also: Fertilizer

Coaching: a hands-on answer to the adoption problem

Coaching represents the final stage in the evolutionary shift from FFS and GAP to farmer-centric learning. Its one-to-one approach aims to improve adoption rates by delivering tailored training to farmers who have been identified as ready to receive and implement the knowledge. Coaching also encompasses support for non-agronomic issues such as access to finance and the business management of the farm.

The process starts with a diagnostic and planning phase, which produces a two-year farm development plan for each farmer. The plan specifies the requirements for training and other services including inputs, pesticide application equipment, and pruning tools. Each requirement is determined according to farm size, level of farm expertise, and investment decisions developed through decision-making tools.

Coaching takes place through regular individual on-plantation visits, training sessions, and demonstrations. The advantage of such an individual approach is that specific challenges faced by a farmer can be identified and addressed. Early farmer and partner responses have been positive, with farmers reporting a perception of coaching as an advisory service that provides direction to their farm maintenance, while at the same time fostering an understanding of the long-term impact of GAP. Farmers who are not being coached are increasingly interested in participating in coaching programs. And in addition to the correct implementation of GAP by coached farmers, training in good business practices has begun to raise revenues from cocoa cultivation and enable them to invest in off-season revenue-generating activities.

See also: Finance

Coaching: costs and challenges 

The cost of the coaching model, however, is a challenge. For coaching to work, the intensive extensions needed to deliver one-to-one support must be paid for: and this means finding ways to create and measure results-based investment mechanisms that can best serve farmers, co-ops, public- and private-sector extension suppliers, and finance providers. The same early reports suggest that coaching costs per farmer vary considerably across companies: for example, in Cémoi’s pilot coaching scheme the cost of salaries for coaches was too high for co-ops to cover on their own. Similarly, some farmers are unable to invest enough in their own farm to implement Farm Development Plans—they may have the willing to adopt best practices, but they do not have the ability.

Scalability is a key to cost efficiency: as an innovation (such as coaching) increases its impact without the need to re-invest, it begins to pay for itself even if the initial investment has been high. Scaling the coaching model involves a trade-off between increased reach and the degree to which training, in whatever form, can be tailored to the needs of farmers to produce effective results.

Low farmer literacy levels may also present a problem: for coaching to be effective it must adjust to the actual literacy of selected farmers.

See also: Finance

Farmer selection: choosing training-ready farmers

As CPQP progressed, the concept of ‘farmer readiness’ began to crystallize. A farmer who is ready to adopt training methods, take on finance, or properly use fertilizer is a farmer who is more likely to develop long-term increases in profitability and productivity. The question of how and where to invest in cocoa production became a question of who to invest in.

In training terms, costlier investment in follow-up programs and one-to-one coaching must be directed to farmers who are ready and willing to adopt recommendations and practices. Clear, transparent, and efficient farmer selection strategies are currently under development, partly based on self selection and partly on criteria that indicate a likely return on coaching investment (such as readiness to buy inputs and access credit). A generally applied criterion is the savings a farmer has made from sales of the main crop. The selection process requires support by farmer groups, cooperative-employed farmer coaches, and cooperatives (which can scale it out across the membership).

See also: Fertilizer, Finance

Good data: the key to unlocking coaching’s impact

Good data is vital for measuring the impact and cost-effectiveness of coaching. Current indicators include the rates of adoption of productivity packages and GAP in the targeted farms. These are, however, only the beginning. Farm-data-management systems need to be adapted for regular data collection, including real-time tracking of project performance. And while private-sector players are already utilizing early insights to develop good data mechanisms as they strive to include coaching in their overall training programs, there is much work left to do before data can be reliably compared across the cocoa industry.

Data collection in the field suffers from a low capacity for carrying out accurate diagnostics of farms (see Data diversity: the challenge of poor consistency and reliability of data in the Good Data chapter). Methods of farmer selection are still under development (see Coaching: a hands-on answer to the adoption problem, in this chapter), and there is a similar need to identify the characteristics for selection of effective coaches.

The long-term success of coaching depends strongly on the provision of a comprehensive package of affordable inputs, tailored to the individual farmer. All elements of that package are informed by data collection and interpretation. If we are to create coaching programs that achieve the optimal balance between training and reach, we must first develop data systems and processes capable of informing our progress.

See also: Good Data

Coaching pilot project metrics (2015 until mid-2016)

Explore partner stories: Barry Callebaut, ECOM, PACTS

The future in focus: training for long-term sustainable cocoa productivity

The future focus of training must be to build on the foundations laid down by GAP training for certification: going beyond certification to deepen agricultural knowledge and broaden skills away from the field. Productive cocoa farmers will be trained not only on planting and input use but also on entrepreneurship, business skills, and wider economic and life skills such as adult education and nutrition. It is these topics—which are significant to farmers’ livelihoods, and therefore to their ability to run a productive farm—that will stimulate relevance and attendance.

The quest for adoption remains at the heart of cocoa-sector training. How it can be driven, how it can be measured, and how it can be maintained are the core issues by which we must define our efforts and innovations. The early signs are that coaching is an encouraging avenue. Empowering co-ops to develop coaching departments places the possibility of scalability on the table, and has the added benefit of helping co-ops to better understand their members.

As the Cocoa Learning and Innovation Program (CLIP) takes root, it is vital that we begin to view the farmer as an entrepreneur: and to bring targeted mechanisms both for learning and applying new skills to those who will benefit from them most.

See also: Moving forward

CPQP in the field: partners incorporating coaching in their training approaches

Cargill: the shift from training to coaching

Coaching was a challenging concept for Cargill, where the philosophy was to operate at scale. In 2015, Cargill addressed these challenges by developing a coaching approach that could reach the 80,000 farmers in its supply chain. This was achieved through building a network of Lead Farmers trained on agronomic skills, each of whom takes on a coaching role. Coaching is also embedded in the co-op model by ensuring that an Internal Control Systems Manager organizes the coaching at co-op level (this Manager is financed by Cargill and employed by the co-op).

In Cargill’s coaching model, Farmer Field Schools (FFS) provide a basic level of GAP training, while the coaching process aims to assess on-farm conditions that will drive application and improvement. 1,600 Lead Farmers have so far been selected by co-ops and received high-quality training from the World Agroforestry Centre (ICRAF), which intends to visit all 80,000 farmers twice a year. Following an on-farm assessment, which focuses on pest and disease management, a Farm Development Plan will be drawn up to enshrine specific improvements to be made on the farm. A second annual visit checks on implementation of the plan.

Explore partner story:   Cargill Cargill How Cargill rose to the challenge of coaching here.
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ECOM: from certification to farming as a business

ECOM understood that certification-based training (whereby the basic curriculum is repeated annually) is insufficient to ensure high adoption rates. Instead, ECOM designed a field-training system based on factors likely to motivate individual farmers and enable them to improve productivity. Field trainers rolled out in 2015. To encourage good service delivery, trainers are paid according to targets such as number of farm visits per week.

Key training elements include diversification and intensification. Farmers are encouraged to boost household incomes through non-cocoa crops like maize, snails, and cassava. A Farmer Business School was established in April 2016, which offers a five-day training course on farming as a business. The training, which is still in development, includes financial literacy and nutrition and aims to change practice adoption by giving a clearer understanding of the economics behind the different options.

ECOM’s business training model is still in its infancy: but with demand higher than capacity, appetite for expansion is good. Currently, the time commitment required from farmers means the Farmer Business School is self-selecting and slow to scale, but the aim is to cover around 25 % of farmers with scale-up over a period of 3–4 years. After training, many farmers set up a savings account either with a group or with a financial institution: ECOM will be tracking whether farmers change their decision-making behaviour as a result of the training.

Explore partner story: ECOM ECOM Explore ECOM’s evolving training system here.
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PACTS: innovations in training approaches

PACTS began CPQP by coaching farmers on an individual basis: training them on specific post-harvest techniques that would increase the quality of wet beans supplied to the fermentation centers. Adoption rates were very high, but this approach reached only a small number of farmers who lived close to the center and had a specific technical focus. Regular program evaluations by Solidaridad and IDH highlighted the limitations of this model, and PACTS adopted the Farmer Field Schools (FFS) approach to broaden the training to GAP and farm maintenance.

PACTS learned that both FFS and coaching were needed to create impact. The company has recently combined the two approaches into a new strategy, which has been funded in part by IDH. It aims to use FFS to reach a large number of farmers and expose them to GAP, and to bring coaching into play for the most committed farmers. Selection is made according to an assessment of farm maintenance, farm age (less than 20 years old is a requirement), and the farmer’s openness to innovation. The new program aims to select 30 % of the farmers covered for coaching over the next five years.

The PACTS coaching curriculum is based on the common training curriculum developed at national level by the government and other partners (a process that was coordinated by IDH). Farmers are supported on selection of seedling varieties and encouraged to diversify—for example through introducing fruit trees (provided by PACTS).

Explore partner story: PACTS PACTS Explore PACTS’ combined coaching-and-FFS training approach here.
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Swisscontact: serving farmer needs in Indonesia

As part of the Sustainable Cocoa Production Program (SCPP), Swisscontact implemented the Economic Development Financing Facility (PEKA) project in Aceh Province, Indonesia, from 2010 to 2012. PEKA selected farmers to undergo intensive training through Farmer Field Schools (FFS): alongside demonstration plots, this approach was found to increase adoption and impact positively on productivity. The project trained 12,540 cocoa farmers and increased productivity by 124 % from an average of 330 to 740 kg per hectare per year, thereby increasing average cocoa-farmer income by 101 % to USD 1,400 per hectare per year.

Swisscontact adopted a tiered system in which efficient training is filtered down to selected smallholder farmers at village level. Master Trainers (private sector and SCPP field staff) pass on knowledge and GAP skills to Lead Farmers, who in turn train Village Lead farmers from farmer groups. In order to cover a very large geographical area (over 5,000 km, encompassing the area between Aceh and Sulawesi), only one-third of village farmers are selected, using criteria provided by both public and private sector stakeholders.

The GAP training has been refined to incorporate nursery management, top-grafting techniques, farm rehabilitation for unproductive trees, replanting, post-harvest processing, quality control, and fermentation. The Swisscontact training manual, which was developed together with all partners, drawing on learning from manuals previously developed by Mars Inc. and other stakeholders, and incorporating lessons from the PEKA project, has become a best-practice benchmark for the cocoa sector in Indonesia.

The Master Trainers also guaranteed the quality of the FFS. Key Farmers were identified who could encourage other farmers to join the training and to follow up on the practices trained: the Key Farmers were trained on GAP and farmer group development. This FFS approach is seen as highly successful in Indonesia and has been taken up in an industry ‘cluster approach’ (see Clustering and selection: improving the focus of farmer-centric training, in this chapter) that has provided the basis for scaling up across the country.

Demand has driven Swisscontact’s training innovations in Indonesia: instead of the supply chain determining the type of training farmers are offered, farmers themselves are encouraged to select training topics through discussion. As the Swisscontact model has developed, business and nutrition modules have been added to better serve the needs of farmers. Demo plot training has also served to increase adoption rates: participating farmers are given the opportunity to make farm management decisions before applying them to their own farms, imparting a better practical understanding of new farming techniques, circumstances, and priorities.

Explore partner story:  Swisscontact Swisscontact Explore Swisscontact’s tiered GAP delivery here.
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Olam, Blommer, Hershey’s: improving adoption rates

CocoaAction’s work to highlight the need to increase adoption of training practices led Olam to introduce coaching as part of a capacity-building collaboration with the International Finance Corporation (IFC). Farmers now receive individual farm visits to help them to fully understand the GAP training provided by Olam’s Farmer Field Schools (FFS).

Demonstration plots have been set up for use during FFS training, and Olam has established a month-long intensive course for each farmer trainer on agronomic practices to boost their ability to support farmers.

Olam’s training and coaching system is empowered by good data. In July 2015, the Olam Farmer Information System (OFIS) was launched: a technical solution for collecting, analyzing, and utilizing farm-gate-level data. OFIS generates data through farm mapping and surveying, which enables the system to create individual farm management plans. These plans can recommend the exact amount of inputs to apply each year, and give farmers guidance on when best to apply them based on historic records of disease etc. In coaching terms, the plans are used to help farmers understand how they can potentially cut costs, increase yields, and swell revenue.

Explore partner stories: Barry Callebaut, ECOM, PACTS

See also: Good Data

Cocoa: a sector in need of finance

The CPQP productivity package includes finance for good reason. Smallholder cocoa farmers are often operating at a level of access significantly behind the standards of commercial farming. Even farmers who have graduated from training programs delivered by IDH or partners, successfully adopted Good Agricultural Practices (GAP), and achieved solid yield improvements (between 10–40 %) require access to agro-inputs and materials. They may also require rehabilitation and/or replanting of their crops to achieve the full potential of their farm.

Grant funding, such as the GAP funding provided by IDH, is only the beginning. GAP funding for farmers has a rough price tag of USD 100–150 per farmer: a one-off cost that gives farmers access to the basic knowledge required to take advantage of the productivity package. A simple fertilizer composite, on the other hand, can cost as much as USD 500 per farmer per season.

Making the leap from GAP to productivity with innovative finance

Innovative financial input is required to help farmers make the leap from GAP (which improves general farming practices) to increased productivity (which is achieved via a complex mixture of tailored ‘beyond-certification’ training, risk-managed finance, and access to fertilizer). Innovative financing (see Blended finance: risk-sharing with cocoa-sector players, in this chapter) aims to find ways around traditional impediments to financing farmers in undeveloped economies—for example by first-loss funding, which uses conditional grants to share the risk of lending.

Innovative financing secured through leveraging supply chain partners can ultimately help smallholders become entrepreneurs, giving them the capital they need to invest in their farms and livelihoods. The perceived risks of financing agriculture in developing economies, however, still present a real challenge for the sector. With credit largely limited to short term pre-financing for the purchase of cocoa beans, farmers have been given the ability to address cashflow bottlenecks at harvest time—but not the capacity to invest in longer-term solutions.

See also: Fertilizer, Training

Figure 1. Farmer Development Over Time

Finance for fertilizer: the key to the CPQP productivity package

Fertilizer, an expensive but vital input, can be the missing ingredient that makes the difference between a productive farm and an unproductive one.

On November 1, 2012, the Cocoa Fertilizer Initiative was established in Abidjan. It identified soil infertility as a systems failure that cannot be solved by the cocoa industry alone. Finance was a significant component of the CPQP productivity package and was the key to unlocking the largest investment needed by farmers looking to increase production and profitability. Partnerships were established between the public sector, the fertilizer industry, and the financial sector to increase farmers’ access to fertilizer.

Three types of finance were identified: cash and carry, fertilizer for beans, and farm financing (credit). Several projects introduced the fertilizer-for-beans model, in which co-ops or exporters provide fertilizer and receive repayment through the delivery of cocoa beans. While some projects had moderate success with this approach (see Cash and carry to improve soil fertility: PACTS in Côte d’Ivoire, in this chapter), others ran into challenges with high default rates and were not able to identify individual farmers to receive fertilizer.

To test whether the financial sector could deliver credit for the cocoa sector, a small number of prototype projects were initiated. In Nigeria, Kokodola worked with FADU, a local micro-finance institution, which supported farmers to open deposit accounts and paid for delivery of beans directly into those accounts (see Continaf B.V. and the Kokodola Project: learning credit lessons in Nigeria, in this chapter). Loyalty to co-ops was significantly lower than expected and side selling was very high, which resulted in high default rates.

At the same time, policy changes in Côte d’Ivoire introduced price stabilization to the country. In a more reliable market, farmers who could be certain about the price they would receive for their beans no longer needed to sell as soon as prices rose. This reliability was a key factor in any potential payment scheme, and it opened the door for another partnership with Advans CI (a micro-finance institution established by the Advans Group in Côte d’Ivoire), which had the appetite to invest in the cocoa sector. IDH established a partnership with Advans CI to develop a financial product (see Advans CI: bringing micro-finance to the Ivorian cocoa sector, in this chapter) called the Cocoa Loan, which offered lower interest rates to co-ops in Côte d’Ivoire participating in the WCF Cocoa Livelihood Program.

The Cocoa Loan pilot project by Advans CI was a clear success. It demonstrated that a viable business model exists for agri-finance to support cocoa farmers, and that co-ops and farmers are able to repay loans effectively when the credit model is right. In addition, IDH learned it could play a role in reducing the risks of financing cocoa farmers, including through facilitating partnerships between the cocoa and financial sectors.

See also: Fertilizer, Good Data

From fertilizer-ready to finance-ready: mitigating risk in the cocoa sector  

Fertilizer is a key component of the productivity package: but it is not the whole package. To successfully finance cocoa farmers making the transition from GAP to significant productivity increases, we need to create conditions in which de-risked finance can be delivered for the full suite of farmer productivity tools. The recent work of the Cocoa Fertilizer Initiative to support companies to identify ‘fertilizer-ready’ farmers has translated to ‘finance-readiness’, whereby farmers are assessed by their co-ops on a farm development plan. Assessment of the plan looks at its budget (is it affordable for the farmer?), and gauges farmer reliability and loyalty to the co-op (are they likely to make repayment?). The offer of a financial product to farmers also acts as a selection mechanism, between those farmers who are willing and able to take on financial risk and those who are not. In other words: finance-readiness is a yardstick by which enabling financial services can be extended to farmers who have the capacity to make long-term investments in their cocoa production.

Strengthening the offering, savings accounts have been introduced to support fertilizer- and finance-ready farmers as they begin to make investments. Finance-ready farmers are encouraged to save between 20–40 % of the fertilizer purchase price through a saving on account made by the co-op from payments due per kg of cocoa delivered. Advans CI or private-sector players provide credit to co-ops for the balance for the purchase of fertilizer, and the balance is paid in the same season.

Full access to savings gives the potential to even out cashflow throughout the year. It also confers broader socio-economic benefits. Farmers usually receive a lump sum annual payment for cocoa and request advance payments from co-ops to pay for household expenses such as school fees. By building a savings account, farmers become less reliant on advances and are able to conduct real financial planning, conserving and accumulating assets so they can improve their livelihoods and consequently their productivity.

See also: Fertilizer

Blended finance: risk-sharing with private-sector players

While grants can work to improve supply of farmer-level financing, scaling up to make those financial products available to large numbers of farmers is very high risk and requires a different approach. Blended finance solutions combine public and private capital, with the non-commercial capital acting as a first loss cushion. The objective is to leverage larger volumes of private finance into markets where risks are high and financial returns uncertain, but there is the possibility of major positive social impact.

IDH, Barry Callebaut, and IFC signed a risk-sharing partnership of USD 9 million in August 2016 to cover access to credit for up to 100,000 smallholder cocoa farmers in Côte d’Ivoire by 2020. Blended finance funds will provide a guarantee on Barry Callebaut’s portfolio, enabling farmers to build a credit history that has the potential to help them access later rounds of commercial capital. As a public good provider, IDH will take the first loss and after three years the risk (which will then be significantly lower) will transfer to Advans CI.

Explore partner story:  Barry CallebautBarry Callebaut Discover Barry Callebaut’s risk-sharing partnership here.
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The future of finance in the cocoa sector: the CLIP Farm & Co-op Investment Program

Now the enabling environment for farmers to access finance has been created, the next step is to scale upwards. Focus has recently shifted to include financing for co-ops, and direct support to financial institutions to develop appropriate financial products (and improve bankability of co-ops and farmers) is beginning to change the landscape of access to finance for cocoa production.

Local banks are showing an increased appetite for involvement in the cocoa sector to expand their client base. External circumstances such as good cocoa prices and effective cocoa reforms have helped begin the process of engagement with farmers. And partnerships with cocoa companies, which have started to work on credit and risk-sharing schemes between cocoa companies and fertilizer companies, have made it possible for players like Advans to enter the market.

CPQP delivered a key financial learning: finance-sector involvement is the key to managing and mitigating the perceived and actual risks of lending to cocoa farmers. The fruitful association with Advans has demonstrated that it is feasible to work with financial institutions to develop medium- and long-term financial products (including for farm renovation and rehabilitation) for cooperatives that have the capacity to make use of loans in an effective way. The Farm & Co-op Investment Program (one of the key components of the Cocoa Learning and Investment Program [CLIP]) will replicate this model and scale it up through partnerships with a larger number of financial institutions, increasing the supply of services offered to the cocoa sector. At the same time, it will support the cocoa industry to build the capacity of farmers and cooperatives to be able to take on credit responsibly.

A universe of investment: the Cocoa Challenge Fund’s ‘constellations’

With bankability as its core metric for up-scaling cocoa-sector finance, the Farm & Co-op Investment Program aims to forge a direct link between the demand for finance by the cocoa sector and the supply of finance by the financial sector. To enable prototyping of financing mechanisms for farmers and co-ops by industry players and financial institutions, the Farm & Co-op Investment Program has set up the Cocoa Challenge Fund, which is also open for other funders. ‘Constellations’, which can consist of a cocoa-sector player with a farmer/co-op base and a financial institution, can submit prototyping proposals. The learning from these prototypes will be made available to a wider audience to ensure maximal public good impact.

Building capacity for future cocoa production

To move towards a future in which cocoa co-ops and farmers are given the ability to grow their farms productively and profitably, we must develop a common language for assessing the capacity of farmers and co-ops to utilize loans. The Farm & Co-op Investment Program is the beginning of this process. IDH and partners expect the Program to reach 300 co-ops and 150,000 farmers with medium- to long-term financial products, and to build the capacity of 4–5 financial institutions working with cocoa co-ops and farmers. Meanwhile, IDH’s Cocoa Learning and Innovation Program (CLIP) continues to focus on farm productivity and financing. CLIP will convene local authorities, international and local banks, and the private-sector supply chain to invest in in prototyping both medium- and longer-term financing schemes.

See also: Good Data

CPQP in the field: partners finding new ways to finance cocoa farmers

Advans CI: bringing micro-finance to the Ivorian cocoa sector

Advans CI’s mission is to offer credit and savings products, as well as other related financial services, to micro-, small-, and medium-sized enterprises in Côte d’Ivoire, particularly in rural areas. Advans CI benefits from access to the ‘Advans model’, which is the experience accumulated since the inception of the first micro-financial institution of the overall Advans Group network. Belonging to the group gives Advans CI the technical capacity to grow quickly and sustainably.

During a three-year pilot phase (2013­–2015), funding was provided by IDH (and other donors) to Advans CI for operational and refinancing costs up to breakeven point, to enable the company to build its capacity in agri-finance and develop its agricultural portfolio. This included understanding the cocoa production cycle, identifying the cash flow of farmers throughout the year in order to understand when to offer different financial products, and training co-ops on institutional procedures. Advans CI created a new loan product, the Cocoa Loan, which offered lower interest rates to co-ops participating in the Cocoa Livelihoods Program. This in-kind cocoa loan, which offers farmers a grace period of at least four months and flexible repayment schedules, is used by small farmers to access inputs at the beginning of the season.

The cocoa portfolio was highly successful and performance exceeded expectations. The pilot project provided EUR 2,421,945 of input credit (97 % fertilizer and 3 % phytosanitary treatments) to 10,830 farmers through 81 co-ops, with a repayment rate of 100 % over the first 3 years at co-op level and 95 % on average at farmer level.

Explore partner story: AdvansAdvans Explore Advans’ cocoa-sector finance products here.
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Cash and carry to improve soil fertility: PACTS in Côte d’Ivoire

To improve soil fertility, PACTS developed a strategy to increase farmers’ access to fertilizer. IDH provided field-level funding for construction of warehouses for fertilizer storage at fermentation centers, delivering fertilizer access on the ground. PACTS began with the ‘cash and carry’ approach, whereby farmers could purchase fertilizer with cash. This proved to be relatively successful as the premium paid by PACTS was large enough to cover the cost of fertilizer and was set aside for this purpose. As the premium was paid when beans were sold by farmers (from October to March), and fertilizer was required in April, Cémoi—one of the three family-run chocolatier companies that founded PACTS—had to pre-finance the fertilizer. To reduce the risk of this activity, which fell outside of Cémoi’s core business, IDH introduced Cémoi to Advans CI in 2015 and farmers started to access credit for the direct purchase of fertilizer from input suppliers.

Continaf B.V. and the Kokodola Project: learning credit lessons in Nigeria

Continaf B.V. took part in the Kokodola Project, a financing pilot facilitated by IDH funding. The consortium was implemented with two other private companies (Petra Foods Limited and Ferrero), two NGOs (Oxfam Novib and Solidaridad), and the Farmer Development Union (FADU). FADU is a micro-finance NGO that also delivers technical assistance, advocacy, marketing, and technology transfer services to micro- and small entrepreneurs in Nigeria. The aim of the Kokodola Project: to create a growing, sustainable, and efficient value chain for certified cocoa and to improve the livelihoods of cocoa farmers in the states of Osun and Ondo in Nigeria.

FADU Credit Associations received loans from FADU and were used to channel funds. They consisted of a few hundred members, which were grouped into smaller Farmer Credit Societies responsible for delivery of cocoa beans to the supplier. A premium was paid for the delivery of quality cocoa beans and used in part to settle loans for inputs.

Unfortunately, this inputs program was not a success: 70 % of the farmers defaulted. Kokodola began with an inadequate administrative structure in place to deliver the credit and the inputs to individual farmers, and an inexperienced team handing out those inputs. Farmers who had newly joined FADU had little familiarity with the FADU credit system and no credit history.

Significant changes were subsequently made to the Kokodola program, which began linking farmers directly to an accredited chemical supplier—allowing them to buy high-quality inputs on a cash-and-carry basis. This arrangement took care of the default risk and brought stability to the price of inputs.

Explore partner story:   Continaf B.V. Continaf B.V.  Explore Continaf’s involvement in the Kokodola Project here.
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ECOM in Ghana: from pilot to business model

ECOM’s Ghanaian credit scheme was tested with 500 farmers in 2014. The company employed an Inputs Coordinator to manage the scheme (a role initially funded by IDH). Farmer groups were given access to packages of chemicals, fertilizer, and tools, which had been carefully put together for application on one hectare of the farm. Credit was limited to inputs for one hectare of land per farmer and those needing a larger inputs package could finance it themselves. Limiting the size of the package available to farmers on credit controlled the risk for ECOM and facilitated repayment. Only farmers within ECOM’s supply chain were serviced, creating loyalty, and careful assessment ensured identification of farmers able to repay either in cash or cocoa.

The pilot scheme was well structured. Combined with ECOM’s primary cocoa procurement presence on the ground, it resulted in full repayment. It was scaled to 5,000 farmers (with 98 % recovery) and by 2016 had reached 15,000 farmers. It has become part of ECOM’s business model, and the delivery of products and services to farmers is now part of ECOM’s strategy in West Africa. The company now employs a full team to manage and implement this strategy: the team is funded internally and is not reliant on donor funds.

Explore partner story: ECOM

The biggest challenge for the productivity package

When CPQP was introduced in 2014, the topic of fertilizer was firmly outside the comfort zone of the cocoa industry. At the time, traders/exporters were primarily focused on getting farmers organized and certified, and little attention was paid to supporting farmers in accessing the right inputs.

In many ways, the story of the CPQP’s journey is also the story of a quest to raise access to fertilizer, and so increase productivity: through finance, through training, and through the commitment of partners dedicated to bridging the gap between the need for fertilizer and the perceived risk of lending. IDH has worked with companies in the cocoa sector to start piloting approaches to increase access to fertilizer or fertilizer finance by smallholder farmers, in collaboration with the finance sector and the fertilizer industry.

See also: Finance

Low fertilizer access is limiting productivity in West Africa

Cocoa cultivation in the West African sector has generally been dependent on the cultivation of partly cleared forestland. One of the more prominent consequences of deforestation, which has seriously affected cocoa production, is a significant loss of major soil nutrients. This has been a leading cause of the gradual decline of national cocoa yields.

The initial approach to declining soil fertility by the cocoa sector was to increase the availability of high-quality mineral fertilizer at a cost affordable to cocoa farmers in West Africa. Although this approach has significantly increased uptake of fertilizer by farmers, many have limited funds to make a direct purchase.

Fertilizer is a very large expense for producers—comparable to school fees—and its effect on production is highly dependent on correct application to the right trees, the weather, and soil conditions. With twin industries (cocoa and finance) historically reluctant to carry the financial risk of increasing accessibility to fertilizer, new solutions are needed (see Addressing a system failure: the Cocoa Fertilizer Initiative, in this chapter). Without them, productivity and profitability in the West African cocoa sector will remain dangerously low.

See also: Training

Addressing a system failure: the Cocoa Fertilizer Initiative

Several attempts had been made to introduce and promote the use of fertilizer among cocoa farmers in order to improve soil fertility. One of the first was made by IDH in 2009. Support was given to the WCF Cocoa Livelihoods Program (CLP) Growth Fund (financed by the Bill & Melinda Gates Foundation, a delegation of cocoa exporters, and other private-industry players). The program aimed to stimulate the local financial services sector to provide access to finance for cocoa farmers and local suppliers by reducing interest rates on commercial loans. The program was not effective because the financial sector was unable to accept the risk of financing smallholder farmers at the time.

Cocoa companies also considered providing fertilizer through a system of pre-financing and repayment (on delivery of beans), but concluded the risks were too great. Sales volumes were insufficient and poor repayment by farmers represented a potential double loss for the company (on the credit provided as well as the volume of beans).

At farmer level, this lack of finance and poor fertilizer availability represented a perfect storm: a system failure that constituted a significant threat to the cocoa sector. A 2015 International Fertilizer Development Center (IFDC) report estimated that only around 7 % of cocoa farmers applied fertilizer at least once in 2013.

The industry acknowledged the system failure and established a joint collaboration between key players to overcome it. The Cocoa Fertilizer Initiative was launched in Abidjan in November 2012, as a public-private consortium between the cocoa industry, fertilizer industry, cocoa traders, civil society organizations, and government. It was funded by WCF, Le Conseil du Café-Cacao, and fertilizer suppliers and is implemented in partnership with IDH. Launched one year into CPQP, the Cocoa Fertilizer Initiative was a key step towards a better understanding of how to deliver fertilizer to farmers. Its relationship with CPQP was one of mutual development, with key lessons shared as the programs progressed.

CPQP has taught us that the data collection and interpretation carried out by the Initiative on soil types, yield response to fertilizer, the farmer business case for fertilizer, and the definition of ‘fertilizer-ready’ farmers (see The fertilizer-ready farmer: the anatomy of a good investment, in this chapter) is vital for the continuing effort to improve productivity in the cocoa sector. In turn, the Cocoa Fertilizer Initiative has benefited from the lessons of IDH’s CPQP, as well as from work carried out by cocoa companies outside of CPQP. An evaluation of the three-year pilot phase of the Cocoa Fertilizer Initiative in Côte d’Ivoire has been carried out. A summary of the full evaluation report, including its key findings and recommendations, can be found here.

See also: Good Data

Timeline of the approach to increasing uptake of fertilizer by cocoa farmers

2009: IDH established a pilot project with ECOM to provide finance to farmers. This helped to create the Cocoa Livelihoods Program (CLP) Growth Fund, a funding facility designed to stimulate the local financial services sector to provide access to finance for small- to medium-size cocoa enterprises.

2011: establishment of CPQP.

2012: establishment of the Cocoa Fertilizer Initiative, which identified soil infertility as a systems failure that cannot be solved by the cocoa industry alone. Under the program, partnerships were established between the public sector, the fertilizer industry, and the financial sector to increase farmers’ access to fertilizer.

2012/13: direct support to Advans to facilitate access to input finance.

2016: establishment of the Farm & Co-op Investment Program (FCIP). This program strengthens focus on the role of the financial sector, aims to sharpen selection of ‘finance-ready’ farmers and co-ops, and assists farmers in attaining the necessary means to invest in farm productivity.

See also: Finance

Fertilizer in CPQP: one key component, three service delivery models

Increasing uptake in fertilizer use was one of the four key components of the productivity package promoted under CPQP. Various types of collaborative arrangement between the cocoa and fertilizer industries were prototyped under the Cocoa Fertilizer Initiative, with risk a key influencing factor in the design, rollout, and uptake of these systems. Cocoa-sector players facilitated access to reliable cooperatives and farmers, managing risk by identifying ‘fertilizer-ready’ candidates for finance (see The fertilizer-ready farmer: the anatomy of a good investment, in this chapter). The fertilizer industry delivered technical assistance.

At the start of CPQP, three theoretical Service Delivery Models were identified to distribute fertilizer:

Cash and carry: companies work to make fertilizer more available in remote locations, where it may be bought by farmers who now have access to the product. The cash-and-carry model is very low risk and is widely used, but uptake is weak where farmers do not have sufficient access to funds at the start of the season.

Fertilizer for beans: under CPQP, several projects focused on fertilizer for beans, with co-ops or exporters taking on high levels of risk to provide fertilizer and receive repayment through the delivery of beans. Some projects had moderate success with this approach, particularly where a premium offered for quality beans covered the price of fertilizer. Others had challenges with high default rates and were not able to identify which farmers were to receive fertilizer. The fertilizer-for-beans model has now evolved into ‘beans for fertilizer’, whereby farmers save a portion of the cost of fertilizer and repay the balance with beans the following season. Savings are made through access to a savings account (see ‘The fertilizer-ready farmer: the anatomy of a good investment, in this chapter).

Credit: farmers receive credit through their cooperatives. They usually make an upfront payment to the cooperative—which orders, receives, and distributes fertilizer (often with assistance from a microfinance institution [MFI] and/or cocoa exporter). Farmers repay the cooperatives, and the co-ops repay the lender. Around 80 % of current fertilizer distribution runs through credit schemes operating from fertilizer supplier to cooperatives.

Following the introduction of a cocoa price stabilization policy in Côte d’Ivoire, the enabling environment became significantly more conducive to credit because farmers did not have to seek out the highest bidder for their beans at harvest time. CPQP established a partnership with Advans CI, which had identified the opportunity to create access to the significant volumes of fertilizer needed annually to boost productivity. IDH (and other donors) funded a three-year pilot phase (2013-2015), which covered the costs of operations and refinance up to breakeven point, in order for Advans CI to build its capacity in agri-finance and develop its agricultural portfolio. The pilot project was highly successful, providing EUR 2,421,945 of credit for fertilizer to 10,830 farmers through 81 co-ops, with a repayment rate of 100 % over the first three years at co-op level, and 95 % on average at farmer level. Advans CI now has partnerships with several cocoa companies for input credit, including Barry Callebaut, Cemoi, Olam, and ECOM.

Explore partner story: AdvansAdvans Explore Advans’ innovative cocoa-sector financial products here.
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See also: Finance

The fertilizer-ready farmer: the anatomy of a good investment

Simply increasing access to fertilizer finance is not enough: many farms today need to be rehabilitated if productivity declines are to be reversed. The rehabilitation process can be complex, and in some cases requires soil to reach a specific level of present organic matter before mineral fertilizer can be effectively added. Additionally, knowledge on the correct times of year for the application of fertilizer (the start of the wet season and the start of pod formation) must be in place for the farmer to maximize chances of yield increase.

The bottom line is that yields will only rise when both farmer and farm are ready to effectively use fertilizer. The Cocoa Fertilizer Initiative developed the idea of the ‘fertilizer-ready’ end user, shifting the focus from universal uptake of fertilizer to targeted availability. Because the fertilizer investment, relative to income, is so large, it is vital to do the groundwork—both literally and figuratively—to prepare the farm. Fertilizer readiness (broadened within the scope of the whole productivity package to ‘finance readiness’), is an informal designation that shows a farmer is likely to utilize fertilizer effectively enough to impact positively on yield, and therefore on the return on investment.

Fertilizer readiness is assessed through the joint creation of farm development plans, an investigation into the existing level of tree management, and consideration of the farm’s loyalty to the co-op providing credit (which increases the likelihood of repayment). Research and a deepening understanding of the influence of variables such as tree age, shade, and soil conditions are core requirements for the accuracy of this assessment—as is a clear picture of the ways in which socio-economic factors influence the impact of fertilizer application. The research carried out by the Cocoa Fertilizer Initiative on these factors is invaluable for developing reliable forecasts of repayment rates.

Ability to pay is a key element of fertilizer readiness: to widen the catchment of farmers willing and potentially able to make payments, it has been necessary to create a shift in the organization of these payments. Thanks to the introduction of savings accounts, it is now possible to encourage farmers to save around 20–40 % of the fertilizer purchase price during the main harvesting season (taking savings from payments received per kg of cocoa delivered). Farmers previously unable to take advantage of the cash-and-carry model of fertilizer can purchase fertilizer using money saved during the harvest season or pay for fertilizer when the money is available. In these latter cases, the fertilizer is paid for before it is provided to the farmer, and the balance is paid during the same season.

Willingness to train is the final trait of the fertilizer-ready farmer. The recent introduction of coaching as a more effective training tool has provided opportunities to promote the correct application of fertilizer as part of Good Agricultural Practices and farm investment planning. Members of the Cocoa Fertilizer Initiative are currently testing different coaching methods through a number of pilots funded by IDH.

As industry partners experienced success with the savings-account model, IDH shared the information through CPQP. As a result, all partners have adopted variants on this system (adapted to local contexts). Cash and carry/savings models now account for 20 % of fertilizer distributed in the Ivorian cocoa sector.

See also: Finance

Successes, challenges, and the future: how we will fertilize tomorrow’s cocoa crop?

Partnerships are the tool by which we will unlock the future access of farmers to fertilizer. The importance of partnerships is underlined by the Cocoa Fertilizer Initiative’s bringing together of the fertilizer and cocoa industries, which has resulted in innovation and a workable identification of viable fertilizer service delivery models. These collaborations have created economies of scale, reducing the price at retail level while providing farmers with access to quality-assured products. Training on correct application procedures and distribution of fertilizer to local areas has made fertilizer more accessible and available to self-selected farmers (see The fertilizer-ready farmer: anatomy of a good investment, in this chapter). The Cocoa Fertilizer Initiative continues to support the fertilizer industry and cocoa companies to invest in distribution models and the market for cocoa fertilizer is growing rapidly. Co-ops are stronger, there is price stability, and farmers are receiving higher prices.

Ultimately, higher revenues are key to adoption of fertilizer: cocoa price rises to CFA 1,000  per kg in October 2015 resulted in a significant increase in fertilizer purchases in 2015/16. Targets set for fertilizer distribution in 2015 reached 70 % of the accumulative target, demonstrating progress compared with previous years.

The baseline challenge for fertilizer provision remains the ability and willingness of farmers to purchase the input. During CPQP this willingness existed, but proved to be lower than anticipated. The associated risks of relatively high investment and low chance of success have hampered uptake at scale. Out of the estimated 450,000 MT identified by Advans CI (in its 2013 financing report Cocoa Crop Financing Activities) as the overall requirement for fertilizer purchase, 60,000 MT were purchased directly by co-ops and farmers in 2014 through agro-dealers and fertilizer value chains. While a significant increase on the 31,500 MT purchased in 2013, the shortfall in 2014 is clear evidence that the innovation begun by the Cocoa Fertilizer Initiative must continue.

Data collection and interpretation, and the use of that data to design new SDMs, is vital if the perceived risks of financing fertilizer are to be mitigated. Significant time, effort, and funds are currently being invested into research. This investment must continue.

The IDH Farm & Co-op Investment Program (part of the Cocoa Learning and Investment Program [CLIP]), which will build on the activities of the Cocoa Fertilizer Initiative by developing the capacity of banks and micro-finance institutions to supply medium- and long-term financial products, also aims to strengthen the capacity of co-ops and farmers to access these products. It is through giving farmers the tools to take advantage of fertilizer finance and training in a sustainable way that we will ultimately support them to become bankable.

See also: Finance, Good Data, Service Delivery Models

CPQP in the field: partners improving access to fertilizer

Cargill: accepting the challenge of fertilizer supply

When IDH started to develop knowledge and models around fertilizer, it brought this knowledge to Cargill. The company accepted the challenge to be ambitious, and set up a program with Louis Dreyfus (LDC) with two key aims: to build the capacity of farmers and co-op managers to assess and ensure their ability to use fertilizer efficiently, and to offer co-ops an alternative business model whereby they have access to high-quality fertilizer at a competitive price through a direct link with LDC.

LDC delivers fertilizer to co-ops and repayment is made through the delivery of cocoa to Cargill or via direct payment to LDC. Cargill provides some risk sharing to LDC in the event that co-ops default on their payments. Farmers purchase fertilizer from co-ops through two different, seasonal business models: progressive saving or limited 30-day credit (for co-ops) and direct sales (for farmers).

The success of this approach has been the sale of 1,600 MT of fertilizer in 2016 through both business models, with limited risk to the input supplier and to Cargill. The payback from farmer to co-ops is being assessed to find ways to help cooperatives reduce their risk further. The key to success has been taking a cautious approach and paying specific attention to the timing and sequencing of the application of fertilizer to farms. The shift from training to coaching, also facilitated by IDH, has empowered farmers to identify when their farm is fertilizer-ready.

Explore partner story: CargillCargill Explore Cargill’s two fertilizer-supply models here.
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See also: Finance

ECOM: training farmers on fertilizer use

To boost both soil quality and the efficiency of fertilizers and other agro-inputs, ECOM is exploring how different soil types affect production and has begun to integrate soil information into farmer training: including analyses of how soil impacts the ability of fertilizer to work properly. Drawing on experiences from other integrated soil fertility management projects, ECOM is now developing soil action plans at community level. These plans will include the promotion of best soil fertility practices according to different soil types.

Explore partner story: ECOMECOM Explore ECOM’s ‘fertilizer-ready’ soil approach here.
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OLAM, Blommer, Hershey: early adopters of fertilizer promotion

Olam was one of the first companies to work with the Cocoa Fertilizer Initiative, promoting credit for fertilizer through local banks and credit agencies. In 2012, the company worked with Technoserve to improve yields under the Cocoa Livelihoods Program (CLP), which led to the establishment of a partnership with Advans CI and the development of a scheme to provide inputs on credit. Farmer Field School training provides farmers with the information they need to make wise decisions regarding fertilizer investment. The training supports an understanding of price dynamics and cost calculation, and farmers who choose to invest are then trained in affordable fertilizer use—enabling them to apply fertilizer in the proper formula and quantity to a maximum of 25 % of the farm (to safeguard affordability).

Olam’s work with the Cocoa Fertilizer Initiative has enabled risk mitigation in the fertilizer project rollout. By taking advantage of extensive soil analysis carried out by the Initiative, Olam has been able to fine-tune the composition of fertilizer formulae for optimal performance.

Co-ops have also responded well to the additional debt, despite already managing loans from Olam for the purchase of cocoa and other activities such as transport and certification. To ensure the new debt was within the investment capacity of each co-op, Olam requested the submission of financial plans. Finance-ready farmers were carefully assessed and a calculation was made as to the quantity of debt each was willing to take on. Building this solid demand base has, to date, resulted in 100 % repayment from the co-ops to Advans.

The scheme has been highly successful over the last 4 years. Over the last year, there has been a 60 % rise in demand for fertilizer.

Explore partner story: Olam

Growing for the future with the Cocoa Learning and Innovation Program

There is a need to work towards a future where cocoa farmers are cocoa farmers by choice. As long as they are cocoa farmers because they don’t have any other option, we won’t have a sustainable sector and we will not manage to get farmers out of poverty.

The Cocoa Learning and Innovation Program (CLIP) was launched in Côte d’Ivoire in 2016, with a mission to prototype innovations to achieve scale. It will prototype projects to create scalable impact in the following three areas: enabling farmers and co-ops to grow as entrepreneurs, improving cocoa farmer nutrition, and mitigating deforestation and forest degradation.

Over the next five years, CLIP will support the industry and producing-country governments to identify promising and entrepreneurial farmer groups and cooperatives. It will design ways to make longer-term investments (for replanting, for example) possible for smallholder farmers. And it will build the framework for cocoa farming to become a more sustainable livelihood option for rural entrepreneurial farmers—driving innovation both in farmer empowerment and in wider community and environmental issues.

CLIP in focus: three areas, one vision

CLIP’s focus on empowering the farmer is built through engagement with three key areas:

Farmers and co-ops as entrepreneurs: farmers inspired to view cocoa as a business are more likely to invest in the long-term prosperity of their farms. Empowering farmers and co-ops through knowledge and finance is key to the successful regeneration of the cocoa sector.

Nutrition: a cocoa farmer’s health is a vital part of the farming system. Addressing the widespread issue of malnourishment in cocoa communities can transform the lives and livelihoods of farmers and their families.

Deforestation: Tackling deforestation is an urgent issue if we are to create a newly sustainable cocoa sector. The cocoa sector can be part of the solution rather than the problem: by increasing investment in sustainable forms of landscape management, by playing a more active role in developing partnerships to protect and restore forests in the cocoa landscape, and through investment in programs to improve cocoa productivity for smallholder farmers.

By 2020 CLIP aims to have well-established proofs of concept in all of these areas, co-developed with the industry: preparing the ground for the sector to replicate and scale up successful prototypes beyond 2020.

Profitability is the key to empowering the cocoa farmer

During CPQP, the cocoa sector was initially focused on increasing farm productivity. It is not the case, however, that increased yields lead by default to increased incomes (and therefore improved livelihoods). Measuring increases in yield alone does not take into account the additional investments made to achieve higher productivity: the costs of which may outweigh any benefits conferred by the inputs farmers have bought. Profitability, which looks not at the yield but at the total financial health of the farm, is the true measure of a farmer’s wellbeing and potential ability to continue growing cocoa in the future.

There is increasing acknowledgement that smallholders often have a diversified farming system that includes both cash crops and food crops. Food crops play an important role in serving the nutritional needs of a household, and may generate additional cash flow during the lean season. To understand the profitability of a farm, and the effect its cocoa crop has on that profitability, we need to look at the costs of inputs, the income generated from all crops on the farm, and the health of the farming family.

Some companies are in an early stage of piloting innovations to work on food crops and multiple cash crops beyond the commodity of their immediate interest—or are beginning to expand their service supply to deliver services that impact on the holistic wellbeing of the farm and farmer. Examples of this include Barry Callebaut’s dynamic agroforestry model, and the widespread inclusion of adult education modules in training packages.

New ways of thinking about services will empower the cocoa farmer

CPQP developed key innovations for building a cocoa sector that is profitable for the farmer. The imperative, as we move towards 2020 and beyond, is to prototype and upscale them.

For example, CPQP taught valuable lessons about farmer segmentation or ‘clustering’. Clusters are delineated by patterns of behavior or activity, which are generated by a multitude of factors: background, farm condition, farmer health, ability or willingness to save. By looking at the motivations behind the patterns, segmentation defines groups of cocoa farmers in terms of the farm services they need and are capable of investing in.

The future cocoa-sector landscape will be defined by a diverse array of skills and service providers. Some of today’s cocoa farmers may specialize in cocoa, while others will take advantage of improved productivity to diversify: providing alternative food- and cash-crops that will increase the nutrition levels in their diets, or generate extra revenue.

It is also important to identify co-ops that can create a supportive service environment for the farmers of the future as they continue on the journey to becoming more productive entrepreneurs. More intensive farming can mitigate wider environmental issues as a consequence of raised productivity: deforestation is a key example of this. By investing in the suite of interconnected services that will help investment-ready farmers to be more productive, we can help prevent farmers from cutting down more forest areas.

Long-term thinking: more risk and larger funds will bring cocoa farmers out of poverty  

Investments made by the cocoa sector to date have mainly been low risk: Good Agricultural Practices (GAP) training in Farmer Field Schools (FFS), simple input access, and small-scale replanting. Larger, costlier, and longer-term investments are now required to stop the cycle of low-input low-output agriculture that begins when farmers have no access to money, bank accounts, savings schemes, or insurance. Progressive replanting, professionalizing co-ops, professionalizing farmers, and increasing access to inputs like fertilizer are all instruments for removing the farmers’ need to fall back on opportunistic behavior. All of these instruments require higher-risk investment: and are perceived as such by farmers, traders, and the financial sector.

Scale also produces increased risk, which must be mitigated by innovative service design. To deliver large-scale credit to the farmers in its supply chain, for example, Barry Callebaut has entered into a risk-sharing partnership with the IFC (a member of the World Bank Group) and IDH.

Offtake agreements (in which cocoa producers promise to sell their future crops to lending traders) mean the big traders are already exposed to high risk. Large amounts of non-hedged pre-harvest payments are made in return for loyalty: the producer effectively promises to sell to deliver the harvest to the buyer before the harvest has been made. For the trader already locked into offtake agreements, taking further risk on unorganized smallholders (by providing them with more cash for inputs) is obstructive. One of CLIP’s purposes, and indeed one of its key challenges, is to create models that allow the sector to take on these elevated levels of risk. Its initial strategies aim to mitigate risk (and increase access to larger investments) via longer-term finance, risk-sharing partnerships, better data modeling, segmentation, research, and strengthening co-ops (see Mitigating risk: six steps to lower-risk investments, in this chapter).

Building mechanisms by which the cocoa sector can mitigate larger risk requires innovation. Innovation has been CPQP’s legacy. Approaches have been prototyped for stronger engagement in the organization of co-ops, Service Delivery Model (SDM) design, farm financing through local institutions, and risk-sharing through blended finance. All four approaches will move forward with CLIP.

IDH’s role has also begun to shift, from traditional donor (whereby companies submit projects for funding) to business partner and investment broker. The recent risk-sharing partnership between Barry Callebaut, the IFC, and IDH guarantees USD 9 million to support up to 103,000 smallholder cocoa farmers in Côte d’Ivoire by 2020: signifying the start of a deeper engagement by IDH to catalyze change in the sector.

Analysis of SDMs to determine financial stability has been a core driver in changing IDH’s role from donor to business partner. And building partnerships with banks such as the IFC has unlocked significant value, as the investment amount is much higher than a grant and can be channelled into higher-impact areas such as fertilizer.

Longer-term investments have the potential to deliver outcomes the cocoa sector sorely needs: for example the complete rejuvenation of cocoa farms as opposed to small-scale replanting. The challenge, as we move into CLIP, is to prototype ways of financing these investments. We need to start thinking beyond the next fertilizer application, or the next harvest—building a new cocoa sector with a real chance of transforming its farmers into entrepreneurs.

Mitigating risk: six steps to lower-risk investments

Prototyping innovative financial services: the successful penetration of the cocoa sector in Côte d’Ivoire by the Advans Group has shown the potential of innovative finance. Indeed, various initiatives have begun to break the low-input-low-output cycle at farmer level. CLIP will build on these successes, driving the development of schemes that responsibly increase farm- and cooperative-level financing. In tandem, the IDH Farm and Co-op Investment Program, launched in 2016, aims to enhance the internal capacity of banks and MFIs to develop relevant financial products and deliver them to co-ops and farmers. Over time the aim is for credit provision and responsible lending practices to become institutionalized in the financial sector, leading to long-term sustainable supply of finance and less over-indebtedness of co-ops and farmers.

Risk sharing with partners: developing farmer-focused financial products is very high risk for suppliers. Risk sharing—typically with IDH taking the first (and largest) risk, and exiting once the partners have become comfortable in the investment space—gives companies and lenders the confidence they need to develop innovative finance products. IDH has mitigated the risk for Advans to enter the cocoa sector and develop financial products, and has recently developed a risk-sharing partnership with Barry Callebaut and the IFC to enable Barry Callebaut to increase access to financial services (see Long-term thinking: more risk and larger funds will bring cocoa farmers out of poverty, in this chapter).

Better data and modeling:better data enables companies to better understand the costs and impacts of investments. During CPQP, IDH initiated a systematic, data-driven approach to understanding and improving SDMs. Together with NewForesight, IDH carried out an SDM analysis across the cocoa, coffee, and spice sectors—which has provided insights at investor, service provider, and farmer levels. In the wider context of farmer financing and access to inputs, a data-driven approach helps companies to discern the profitable elements of a model, identify fertilizer- and finance-ready farmers, and track the progress of prototype mechanisms. Investment and encouragement are key to driving the harvesting and interpretation of more reliable and informative data: and the need for accurate yield measurement increases with every investment. As more money is spent at field level, or is put at risk by supply-chain players, it is imperative that we help measure yields consistently and well. The Farmer Field Books (FFB) approach, for example, uses bi-weekly data collection (as opposed to annual surveying) to improve the quality of data. FFB data collection allows farmers to engage more directly with the variables affecting profitability—costs and income—and to begin making their own investment decisions based on the respective costs and earnings associated with different farming strategies.

Segmentation: the producer base is not a homogenous group. The sector is working to develop mechanisms to segment farmers in order to better serve their economic needs—and to better define which farmers are ready to make investments in their land. By introducing coaching and farm development plans, it is possible to analyze both the true condition of the farm and the farmer’s ability and motivation to invest—allowing companies to invest and lend with more confidence.

Investment in research: building a knowledge base is a vital element of de-risking future cocoa sector projects. Fundamental research is required to better understand the cocoa tree and its response to environmental and input factors. The Cocoa Fertilizer Initiative has seen a spin-off science project germinated by Wageningen University in the Netherlands and run by multiple companies in several countries. Similar research covering plant physiology, soil, nutrition, light, and water is vital for creating input packages that deliver impact. Through CLIP, IDH will invest in large-scale research along with a consortium of industry partners.

Strengthening cooperatives: aggregating farmers reduces risk for companies and financial institutions. Investment in professional management such as Cargill’s Co-op Academy enables co-ops to provide consistent and better services to farmers. CLIP will work with capacity builders to identify co-ops that can be professionalized into service depots.

Improving farmer livelihoods requires intervention beyond the cocoa supply chain

The sustainability challenges still facing the cocoa sector extend beyond efforts to improve the quality and yield of cocoa beans. Significant environmental and social challenges must be addressed if we are to bring about change in farmer livelihoods. Deforestation, improper chemical usage, loss of soil fertility, pollution of water sources with toxic agrochemicals, and biodiversity loss threaten the land on which cocoa is grown. Gender inequality, child labor, malnutrition, and lack of access to education maintain a socio-economic climate in which disease is a fact of life and poverty is all too commonplace. Overcoming these threats will require a considerable shift in cocoa farming and related practices.

As we move beyond CPQP, it is vital that we broaden our focus. CLIP is the lens through which this new, wider focus will be achieved. Holistic thinking, combined with researched, targeted, and de-risked investment, is what will bring about the changes necessary to create a thriving cocoa sector to 2020 and beyond.

New kinds of partnerships will accelerate innovation

In order to make sure the productivity package is accessible, we need to work innovatively. We need to design and trial new business models. The involvement of other industries—such as input and finance—must deepen. And cocoa-industry players, producing-country governments, and civil society must cooperate effectively.

CPQP has led to the development of new types of partnerships for IDH. It has also led to the development of new approaches, which include an investment strategy that ensures the bankability of projects, giving them greater potential for upscaling. IDH has begun to operate more as an impact investor, co-designing large-scale intervention strategies and shifting away from the conventional donor role (in which companies submit projects to be funded).

The power to drive innovation comes with its own responsibilities. IDH, with its proven track record in convening, continues to bring key stakeholders together around issues that require collaboration in order to bring about changes in business practice and governance.

CPQP was the beginning. Moving into CLIP, we aim to accelerate the innovations that will bring the productivity package to the farmer who needs it.

The landscape approach: towards halting deforestation

The Ivorian President has committed to working towards a zero-net-deforestation agricultural sector by 2017, halting deforestation by 2020, and targets to reforest and raise forest cover to 20 % by 2023. Many key industry players in cocoa, oil palm, and other sectors have also made commitments towards zero net deforestation in their supply chains. IDH aims to put these commitments into practice and find balance between forest, agriculture, and people with the Initiative for Sustainable Landscapes in Côte d’Ivoire and the Cocoa Forest Initiative in Côte d’Ivoire and Ghana.

Through the Initiative for Sustainable Landscapes, a multi-stakeholder coalition will jointly design a program that balances commodity production and environmental protection. It will put forward a scalable, sustainable land-management model in the wider Taï forest area, in which around 40 % of the country’s cocoa is grown.

The Cocoa and Forest Initiative, IDH, the World Cocoa Foundation, the Prince of Wales’s International Sustainability Unit, and partners will also work towards a joint framework of action in Côte d’Ivoire and Ghana led by national governments, cocoa-sector players, civil-society donors, and others. The process will set out clear commitments, timelines, roles, and responsibilities and indicate investment requirements. These are to be presented in November at COP23 in Bonn.

Farmer health is sector health: why we need to focus on nutrition

Malnutrition of cocoa farmers and their families is a major issue in West Africa. Over 60 % of the rural population suffers from anaemia, while stunting levels can be as high as 34 % (in Côte d’Ivoire) and 22 % (in Ghana).

Malnutrition is not just a problem for individuals. It is not only a problem for communities, or for governments. It is also a problem for the private sector. Where disease prevails, productivity is impacted. When producers fall ill, safety nets are needed. Health education, access to finance, basic household budgeting—all of these things are within the reach of the cocoa farmer, if the cocoa industry is prepared to help them.

If a farmer falls ill, services like credit or fertilizer can be diverted to meet the basic household needs of food and healthcare. Companies that provide support for people dealing with issues beyond the supply chain build trust with their producers and increase their chances of securing the next generation of farmers.

IDH has identified nutrition as one of the major issues affecting the supply chain: and it is one that currently receives little attention from the sector. Under CLIP, IDH will work closely with the Global Alliance on Improved Nutrition (GAIN) and participating cocoa companies on a common understanding of the issue and possible interventions. Supply chain strategies that address poor nutrition in cocoa communities will be identified, developed, and prototyped. Through research, innovation, and partnership, we aim to give the next generation of cocoa farmers the healthy start it so urgently needs.

The cocoa-sector players that made CPQP possible

These are the stories of our partners: forward-thinking companies that are investing in the future of the cocoa industry and the livelihoods of cocoa-farming families. Some are success stories. Some are lessons learned: initial failures that triggered reflection, revision, and improvement. All are instructive and, we hope, an inspiration to like-minded partners.

Hear from:

• Advans
• Barry Callebaut
• Cargill
• Continaf BV
• ECOM
• Mars
• Olam, Blommer, Hershey
• PACTS
• Swisscontact
• Theobroma

Thanks

The progress made by CPQP simply would not have been possible without the commitment, ingenuity, and passion of our partners. If we had the room to do so, we would thank everyone individually. As it is, we would like to extend our thanks to a few who have become very close to us in the last five years: