NB Financial Health
Chocolate at Risk?: Why sustainable finance is crucial to ensuring a steady cocoa supply for the world’s chocolate industry
Smallholder cocoa farmers in Côte d’Ivoire produce 40 percent of the world cocoa supply and are the backbone of a global industry worth billions of dollars. Yet while they generate up to 15 percent of the Ivorian gross domestic product, the vast majority still live in poverty due to declining productivity.
Cocoa yields in Côte d’Ivoire are some of the lowest in the world, primarily due to aging trees, deteriorating soils and disease. In the absence of long-term financing opportunities, cocoa farmers have been changing to other crops with better income opportunity, such as rubber trees.
Investing in sustainable cocoa farming is crucial to ensuring a steady cocoa supply for the world’s chocolate industry and to improving the livelihoods of farmers in Côte d’Ivoire. Over the past 12 months, I traveled twice to Côte d’Ivoire to explore how to improve cocoa farmers’ access to long-term finance for farm rejuvenation. A feasibility study I conducted with the Sustainable Finance Initiative showed that long-term loans tied to farm improvements are possible and can be repaid with the revenue generated from the increased production that results from these investments.
Thankfully, socially-minded investors are also recognizing this as an opportunity. I’ve spoken to many development finance institutions and “social finance” lenders in Europe and the US who are interested in mobilizing capital to support cocoa farmers working to revive their land.
Some social lenders, such as Alterfin and responsAbility, have already invested in the cocoa sector, lending to large export cooperatives like Ecookim. Advans Côte d’Ivoire, a local microfinance institution, started providing short-term crop-protection and fertilizer loans to cocoa farmers under the World Cocoa Foundation’s Cocoa Livelihood Program in 2012 and will reach approximately 7,000 cocoa farmers this year.
However, there is no financing mechanism available in Côte d’Ivoire to channel the kind of large-scale investment needed for long-term cocoa farm rejuvenation. In fact, structural barriers and lack of financial intermediaries have made it impossible for willing investors to deploy capital and for smallholder cocoa farmers to access finance at affordable terms.
In general, there is a need to develop financial products and solutions that are adapted to meet smallholders’ financing needs. This is one of the primary goals of the Rainforest Alliance’s Sustainable Finance Initiative.
As mentioned in a recent post by Rainforest Alliance President Tensie Whelan, there is great demand for sustainable development financing and great potential for lenders to improve their bottom lines while supporting millions of smallholder farmers on the path to sustainability. Part of bridging the sustainable financing gap will be developing innovative financial products and adequate training that meet both farmers’ and investors’ needs.
This post was originally published on Rainforest Alliance’s blog. It is cross-posted with permission.
Hélène Roy is a development and finance professional, and a sustainable finance consultant at Rainforest Alliance.