For cocoa farmers in the forested region of San Martin, Peru, adapting to new, sustainable farming methods may mean passing through the financial ‘Valley of Death.’
Improved cocoa farming methods can boost yields and reduce negative effects on the environment. For example, by planting the cocoa trees between other native tree species, farmers can improve soil quality and raise yields, which means they are more likely to keep farming the same patch, rather than moving and cutting new swathes of undisturbed rainforest every few years.
It seems like a win-win situation: more profitable, better for the environment. But despite the benefits, farmers struggle to make this transition.
Why? It comes down to investment. Farmers will need money to buy new trees and equipment. They will probably also need to learn new farming methods. Funding this is difficult, as most cocoa farmers are smallholders, who can only access expensive short-term loans, which often have interest rates of 24% or above. This means switching to sustainable methods would mean crossing what we call the Valley of Death: several years of high costs and low returns, potentially impossible for the vast majority of cocoa smallholders.
A new piece of analysis from Global Canopy Programme shows how lenders could overcome the Valley of Death by changing the lending conditions for agricultural finance. ‘Conquering the ‘Valley of Death:’ overcoming pitfalls in financing sustainable agriculture’ shows how lower interest rates and longer grace periods (before the loan must be paid back) makes the proposition becomes much more attractive. Indeed, it should be significantly more attractive than borrowing money for traditional agriculture if farmers are to abandon generations-old slash and burn practices.
Such an approach could be extended to many different ‘deforestation risk commodities’, such as soy, coffee or palm oil, which are currently eating into the forest across the tropics. And loans are just one way of financing sustainable agriculture. Many organisations are starting to experiment with innovative mechanisms to make sustainability profitable, detailed in this recent policy briefing.
The cocoa analysis comes from the GCP-led Unlocking Forest Finance project, which has worked in San Martin, Peru, and two regions in Brazil, to build the case for investment in more sustainable forms of land use. Alongside cocoa, the team analysed a wide range of other supply chains and considered the potential to make them more sustainable.