Climate change poses a threat to agricultural development, particularly for the 800,000 cocoa smallholder farmers in Ghana. Climate smart agriculture (CSA) is an approach for smallholders to remain productive and increase resilience in the face of climate change. However, CSA practices – including the renovation and rehabilitation of cocoa trees – require capital that smallholders cannot easily access.
Convergence awarded a feasibility study grant to the Rainforest Alliance and Rabobank’s development group, Rabo Partnerships, to explore an investment and risk sharing facility for local financial institutions in Ghana to on-lend to smallholder cocoa farmers for CSA investments. The feasibility study analyzed the Ghanaian cocoa sector and financial ecosystem, concluding with a multi-stakeholder workshop to present and validate key findings.
Tree replanting requires significant upfront investments that can only be repaid in the long-term. The Ghana Cocoa Board – COCOBOD – is involved in every aspect of this value chain and financial intermediary credit to the agriculture sector is limited because of the complexity as well as the perceived and real risks associated with agriculture lending.
CSA investments can be financed if smallholders have enough funds to overcome the negative cash-flow cycle in the first three years. COCOBOD-orientated solutions and fund-orientated solutions to increase availability of smallholder funds could be further explored. Rainforest Alliance is actively exploring fund-orientated solutions.
Overall, the feasibility study found that blended finance solutions to increase bank lending to smallholders are difficult to structure and implement. However, blended finance can still play a role in the space if focused on aggregators who can on-lend to smallholders. Lastly, value-chain specific solutions in a single country are unlikely to catalyze international private investment.