LDN Fund and LDN TAF Case Study

Business model:

Forestry

Financing:

Debt financing for restoration on degraded land

Projected impacts

  • 42,500 hectares of land

    now projected to contribute to LDN

  • 5 million MtCO2eq

    sequestered

  • 1,500 additional jobs,

    of which at least 19% (24% in Ghana) are women, and improved incomes for local communities

Commercial afforestation programs supported by the LDN fund

The impacts and risks of large-scale forestry plantations are closely linked to the management approach taken and local context, but good practices and a suitable location allow for the effective mitigation of risk and promotion of positive impacts. The LDN Fund identifies and supports programs that follow best practices to overcome common plantation concerns, develops together with the companies ambitious Environmental and Social Action Plans and monitors implementation throughout the investment period, and can provide TA through its Technical Assistance Facility managed by IDH to make further improvements.

Rather than pure monocultures, LDN Fund supports programs that plant a mosaic of different commercial species, reinforced by FSC® requirements for conservation areas with indigenous species, buffer zones, and the protection of High Conservation Value areas. This mosaic of different species and conservation areas supports an increase in biodiversity and improves ecosystems compared to the degraded land it replaces.

Sustainable commercial plantations are an important component of Forest Landscape Restoration, as one type of land use in the landscape combined with natural forest protection/restoration, agriculture, and other activities. Furthermore, commercial afforestation as part of a landscape approach is recognised as contributing to LDN, with a 2019 UNCCD report noting its importance for poverty alleviation: www.unccd.int/publications/forestsand-trees-heart-land-degradation-neutrality

In addition to positive landscape-level impacts, such as reducing deforestation pressures on natural forests, it is also necessary to assess potential negative impacts of a plantation on the wider landscape, e.g. on water availability. Robust due diligence and post-investment processes, including rigorous monitoring, ensure that risks are understood, well managed, and closely monitored.

Context


West Africa experiences large-scale deforestation, often as a result of illegal logging, unsustainable agricultural practices, mining and poor land governance. Ghana has seen a net forest loss of 1,250,000 hectares/ year between 1990 and 2010. The annual cost of land degradation in Ghana is estimated to be US $1.4 billion, or 6% of its GDP. In Sierra Leone, once a much-forested country, only 5% of intact forest is remaining.

Background


In light of these developments, Miro Forestry, an afforestation company that operates forest plantations in Ghana and Sierra Leone, is managing a business that replants degraded lands and offers income opportunities to the communities living in these landscapes. In Ghana, these operations are in the Ashanti district, and in Sierra Leone in the Yoni chiefdom regions where local agricultural production tends to be largely at the subsistence level, with minimal infrastructure, and limited formal employment opportunities.

Since 2010, Miro Forestry has been supported by initial investments from development finance institutions including CDC Group and Finnfund. The company, which employs over 1,000 people across both sites, currently operates on 42,500 hectares of previously low-yielding grasslands and degraded forests, with 3,000 hectares of new plantation expected to be added each year. By operating FSC®-certified forestry plantations that grow commercial timber species through a mosaic structure, combined with the protection and regeneration of indigenous tree species, the area under management is expected to contribute to achieving LDN.

With respect to the land tenure context, Miro Forestry has developed a land access policy that meets international best practices, complies with local legislation and meets the social and cultural needs of the communities on and around the land. In Ghana, compartments of degraded forest reserve land are leased from the Forestry Commission and the Traditional Council (identified as the landowner). The lease agreement formalizes a partnership arrangement between the three parties, assigning specific areas of responsibility and reward to protect both the plantation investment and areas of cultural and natural resource importance through profit-sharing agreements and social investment. The process considers both the environment and the social wellbeing of individuals farming in the compartments that Miro Forestry leases.

In Sierra Leone, Miro Forestry leases land directly from landowners, which is endorsed by the chiefdom council representing the people and the landholding families. This lease agreement also seeks to build partnerships and share roles and responsibilities, with profit-sharing, employment opportunities, and support for social development. As land is leased directly from landowners in this case, Miro ensures that communities have access to a third-party civil society organization to provide support and ensure that free prior and informed consent (FPIC) is secured. Also, participatory and detailed village mapping and social development planning are undertaken as part of the process to reduce the risk of the lease impeding on the communities’ sustainability.

Future Plans


Part of Miro’s expansion is planned to be through a smallholder or community outgrower scheme. In general, successful smallholder schemes have been set up in Ghana, but these have primarily been in the palm oil, rubber and cocoa industries. In Sierra Leone, no successful large-scale outgrower schemes have been implemented to date. Particularly in forestry, smallholder growers have been hindered by limited access to markets, and lack of expertise and knowledge, which an outgrower scheme can help overcome.

Flow of capital and services


Business Model


Miro Forestry operates FSC®-certified plantations that are a combination of commercial timber species and conservation areas. It has a small commercial scale sawmill, rotary veneer mill and green charcoal production unit. It is now also in the process of building a plant for the treatment of wooden electricity transmission poles, more drying kilns, expanding the veneer mill to a large-scale ply mill, and an edge glue board facility. Plantation and maintenance costs during this time have been around US $2,300 per hectare, which is globally competitive.

At the same time, the timber market is growing; as also regional demand is projected to continue to outstrip supply, prices are projected to increase. Additional revenue is being sought through certification of Miro Forestry’s plantations to the voluntary carbon standard, allowing for sale of the resulting credits.

With respect to smallholder and community inclusion in the business models, in Sierra Leone, revenue from land leases provides a valuable income to communities. Through a benefit-sharing system for local communities, 20% of standing tree value paid out in Ghana, with a comparable arrangement in Sierra Leone, ensure benefits contribute to landscape community income.

Investment

Purpose: The LDN Fund investment in Miro Forestry allows for an expansion of plantation sites in Sierra Leone and Ghana on degraded land.

Type and amount: quasi-equity investment of US $12 million, supporting a total financing round of up to US $54 million.

Duration: The investment lifetime is 11 years, and the LDN Fund is considering a second
tranche of the investment specifically for scaling up the planned timber smallholder outgrower scheme.

Risk management


Miro Forestry operates to high environmental and social standards, following FSC® and IFC performance standards and the VGGT. It is one of the first FSC®-certified plantations in West Africa. Key risks are managed as follows:

Technical assistance


The LDN TAF is supporting the project both pre- and post-investment.

  • The LDN TAF supported Miro Forestry in developing the initial stages of the smallholder scheme, by establishing a demand-driven project exploring a variety of smallholder models and pilot implementation with a limited number of smallholders (aim: 40 hectares planted in each country). This was accompanied by an SDM analysis showcasing the business potential for engaging with smallholder farmers in the wider landscape, not just for the company but for the smallholders. Based on the insights gained during the pilot, the smallholder scheme will be further refined in a follow-up technical assistance phase to enable the second tranche investment by the LDN Fund to take place and to allow full-scale implementation of the scheme.
  • Following the investment by the LDN Fund, the LDN TAF is currently designing a landscape-based technical assistance plan with Miro Forestry. This will support the development of a participatory land use plan (PLUP) to identify suitable locations for the community/ smallholder outgrower timber plots/plantations, also in terms of landscape and conservation impact. It will enable the company, community and other stakeholders to improve management of natural resources in the landscape (especially related to water management and halting deforestation and biodiversity loss). Initially, this technical assistance support will be focused on Sierra Leone, with the potential to replicate in Ghana. Following the development of a PLUP, a landscape-wide multi stakeholder action plan and implementation of a wider landscape strategy is considered.
  • Finally, the LDN TAF supports Miro Forestry in developing an LDN baseline to comply with its environmental and social action plan, as well as to practice adaptive management. Potential for a technical assistance package focused on internal skills development/capacity building to attract and maintain local talent at Miro Forestry is being explored.

Projected Impact

  • LDN
  • Gender
  • Community livelihoods
  • Forest
  • Climate

LDN

42,500 hectares of land will be sustainably managed, contributing to LDN. This includes:
• 7,500 hectares of conservation area as a buffer to protect ecosystems and biodiversity and for conservation purposes;
• 17,200 hectares of commercial timber already planted and 50,000 as landholding.

Gender

19% (24% in Ghana) of seasonal workers are women. This is considered high in the industry and Miro Forestry is actively driving a further increase in this percentage.

Community livelihoods

An increase from ~100 jobs in 2014 to 1,500 jobs in 2019 has already taken place, thereby increasing income and opportunities in the surrounding communities. 33% of household income is currently derived from employment with Miro Forestry. Salaries are approximately 30% higher than the national minimum wage in both countries. A further 1,500 new rural jobs are expected, mostly for people from local communities. When the outgrower scheme is rolled out at scale, it will also provide income generating and alternative livelihood opportunities for local communities.

Forest

Sustainable species planting on degraded land surrounding set-aside forest reserves, helping to reduce pressure on remaining natural forests. Conservation of any remaining patches of native forest on the leased area, including active and successful enrichment through replanting campaigns with endemic none commercial trees.

Climate

Sequestration of 5 million MtCO2eq and increased resilience to climate change.

Theory of change


Key lessons for stakeholders


Designing a suitable, commercially interesting timber outgrower scheme is very context-specific and requires extensive stakeholder engagement, which takes time.

It is essential to have stakeholder buy-in from the outset of the project.

In countries where plantation forestry is not a prevalent industry, there are unique challenges associated with the pioneering nature of the business setup.