How Carbon Markets can Help Avert a Chocolate Shortage

25 November   2011 | Can carbon save cocoa? That, some say, is the million-dollar question – or, more accurately, the US$2.2 billion question, since industry insiders estimate that’s the value of carbon stored in Ghana’s cocoa landscapes.

That value could play an important role in ensuring the long-term survival of the nation’s cocoa industry, which faces existential threats in the wake of depleted soil fertility, reduced water supplies, and various diseases worldwide. Already Brazil, once the second-leading cocoa producer in the world, has seen its cash cow fall victim to a massive fungal disease. Now, instead of making money from cocoa, Brazil pays to import it.

Meanwhile Ghana – which is second only to the Ivory Coast in world cocoa production – has seen yields per acre farmed dwindle and until very recently stagnant national production; spurring some farmers to abandon the livelihood that supported their families for generations. That decline and the accompanying flight from farming have been in remission for three years – thanks largely to the current high price of cocoa – but current agricultural techniques are unsustainable over the long haul.

Two-thirds of Ghana’s stored carbon lies in its high-forest region – and the country has already lost most of this, seeing it shrink from 8.2 million hectares prior to 1900 to less than   2 million hectares today, including protected and unprotected forests.

The Cocoa Conundrum and the Sun Curse

Cocoa has always been rough on land. Under the best of circumstances, the cacao trees from which cocoa is harvested suck nutrients out of the soil at rates that require massive infusions of chemical fertilizer – which only 30% of cocoa famers use – and also require heavy doses of insecticides – which about half of farmers use, but in insufficient quantities.

Under traditional cocoa-farming systems forest trees were left intact, because older strains of cacao trees grow well in filtered sunlight, and because at the time it was very hard to remove large forest trees from the farm. Over time, hybrid varieties have improved yields – beginning with strains that can be harvested twice per year instead of once–but the   hybrid trees also tolerate more direct sunlight. This makes it possible for farmers to chop down larger shade trees, with the aid of chainsaws, and plant more cacao trees – an apparent improvement over traditional farmsbecause the hybrids offers higher yields.

Unfortunately, full sun or low-shade systems suck even more nutrients out of the soil because the hybrid tree’s metabolism operates at a higher rate in sunny environment .   Sun dominated system   also encourage some insect pests and – more importantly for the world at large – rob the planet of both carbon-sequestering trees and of valuable habitat for various species of rare animals and plants by encouraging the destruction of natural shade trees that store carbon and provide shelter.

Due to the rate at which full sun hybrid system absorb nutrients from the soil and exhaust the productive capacity of the cocoa trees, such plantations are often abandoned within a few decades and new farms planted on newly deforested land, says Michael Richards, a natural resources economist with Ecosystem Marketplace publisher Forest Trends. Cocoa farmers often then extend their farms or move into other forested areas, bringing deforestation with them and releasing more carbon into the atmosphere.

Most Ghanaian farmers still use the shaded variety of cacao tree, but the hybrids are taking hold – especially in the Western part of the country – and the global atmosphere is paying the price. Long-term, farmers are paying a price as well.

Soil fertility has shrunk noticeably; the hybrid-cocoa trees’ lifespan is growing shorter; and farmers are struggling to survive. Climate change and unsustainable farming techniques have decreased the amount of land supporting cocoa crops by 40% in the past four decades alone, reports the Ghanaian Nature Conservation Research Centre, the leading conservation NGO in West Africa – although the area under cocoa has been increasing in recent years as cocoa prices rise.

Some experts believe that if nothing is done, Ghana’s cocoa sector could go the way of Brazil’s.

“The world is focusing on how to increase consumer demand for chocolate, especially in Africa, but it may not be a great long-term investment if we run out of cocoa in 30 years,” says John Mason, executive director of the Nature Conservation Research Centre (NCRC).

Preliminary research by the University of Reading in the UK suggests that traditional shaded-cocoa farms store over twice as much carbon as shade-free farms. Farmers could be persuaded to increase their tree canopy and decrease their cocoa yield if carbon trading makes it worth their while.

Re-Thinking the Process

Scores of environmental non-governmental organizations (NGOs) have called for a moratorium on new sun cocoa plantations and a return to shade-cocoa. Many believe that carbon offsets for projects that reduce greenhouse gas emissions from deforestation and forest degradation (REDD) can make it worthwhile for farmers to return to shade-growing, but Michael Packer, managing director of ArborCarb Ltd, says simply reviving the shaded growth method will not be enough.

“Traditional cocoa is problematic, too, in the way it has been produced,” he says. “After all, that led to the deforestation that exhausted soil, which lead to the requirement for hybrids.”

The solution, he adds, is to manage cocoa plantations differently.

“We need to work with the ecosystem to manage soil nutrient content, biodiversity, and associated ecosystem services – including carbon sequestration and disease control,” he says.

Pioneering Cocoa Carbon

This sparked a push to create the world’s first-ever cocoa carbon initiative – and, not surprisingly, its Petri dish is Ghana.

Forest Trends, NCRC, and the Katoomba Group (an international network promoting ecosystem service markets and co-publisher of the Ecosystem Marketplace) are spearheading a carbon-offset pilot project under the Katoomba Incubator program, which has already initiated community-based projects across Latin America. At a larger scale, the cocoa carbon initiative is couched within an effort, also led by these organizations, to facilitate a climate-smart agricultural finance mechanism for Ghana’s cocoa sector.   If both endeavors are successful it could dramatically change the way that cocoa is grown in Ghana, providing both climate change mitigation and adaptation benefits to farmers.

Who Are the Farmers?

The majority of cocoa farmers still attain low yields (less than 400 kg of cocoa beans per hectare).   A large number of these cocoa farmers are share croppers, but many also farm on family land or land they have purchased. Regardless of the ownership structure, the cocoa carbon initiative plans to measure whether farm owners who preserve or enhance the carbon-stored in the shade trees on their farms and in adjacent forest lands can   receive benefits.   These benfits may be in the form of payments from the sale of carbon-offset credits, or through access to agricultural loans, insurance, and extension services that provide information on best farming practices.   The overall aim is to see whether increasing the amount of shade (and therefore carbon) on farms can go hand in hand with increasing productivity to improve farmer livelihoods.

According to Rebecca Ashley Asare, Coordinator of the West Africa Incubator and an expert on cocoa farming practices in Ghana, people’s initial response is always, “no-way” because shade does reduce productivity, but this assumes that the system is operating at its productive potential.

“Most farmers in Ghana could significantly increase their yields through the adoption of a few simple practices, like pruning the canopy of the cocoa trees and planting fewer cocoa trees to reduce competition”

Asare believes that there is real opportunity to increase yields on farm through the adoption of best farming practices, regardless of the shade level.   Carbon only creates an additional incentive to improve farming practices, and potentially new revenue streams by which to do so.
This could answer the US$2.2 billion question – if policymakers can navigate several complex hurdles. Chief among them is land tenure.

The Tenure Quandary

In 2009, the Katoomba Group invited key participants from a range of stakeholder groups – including various government departments – to an REDD Opportunities Scoping Exercise that identified tree tenure as a major constraint for REDD.

Tree tenure laws in Ghana, for example, discourage farmers from keeping timber trees because the state owns all naturally occurring trees, while planted trees belong to the person who plants them. Farmers, therefore, are only permitted to fell timber trees for household use, but not for income. Only timber groups with government concessions can fell naturally occurring trees for money – leaving cocoa farmers no economic or financial interest in preserving trees growing on the land they either own or work.

Adding to the complexity: many cocoa farms are located within the ‘off-reserve’ (land located outside of protected areas and forest production reserves) areas of timber concession zones. This means that a logger with a concession can harvest the farm’s trees – although the logger does have to let the farmer know he’s harvesting them, and technically he has to compensate the farmer for the felled timber trees and any damage to cacao trees from machinery. Unfortunately, there are no standards of compensation, and disputes are quite common.

To avoid the hassle – and the risk of damage – cocoa farmers often select smaller shade trees in preference to timber shade trees. They have also been known to destroy timber saplings and even ring-bark mature timber trees. Those who keep the trees often sell them clandestinely to chainsaw operators who cause minimum damage to cocoa.

The Katoomba Scoping Exercise concluded that the best chance for sustainable shade-tree cocoa farming, as well as other tree-based systems, would be the extension of what are known as Community Resource Management Areas (CREMAs) in which communities can hold greater rights manage and benefit economically from   the natural resources on their land, including trees.

NCRC is working with a few pilot CREMAs, but there are currently only a handful in the country, and the government has not adopted a policy of promoting them. Local NGOs argue this must change as part of a national REDD program.

The Importance of Education

A public-private partnership named the Sustainable Tree Crops Program (STCP) kicked off in 2000 to introduce sustainable innovations such as integrated pest management and reduced chemical use to enhance cocoa productivity.

Farmers graduating from the program’s “farmer field school” have seen their incomes improve by 15-50 percent, says Bill Guyton, president of the World Cocoa Foundation that supports the partnership and represents nearly 70 chocolate companies worldwide.

So far, however, only a small percentage of cocoa farmers participate in the field school, and Guyton says he’s anxious to explore the use of carbon credits to augment farmer income and industry sustainability.

Credits could be generated through four types of transactions activities under the REDD banner or as afforestation/reforestation projects under the Kyoto Protocol’s Clean Development Mechanism – or in the voluntary carbon market.

Compensation for Limitation

REDD-wise, cocoa growers could be compensated for not encroaching on forest reserves or deforesting to extend their plantations. On farms, they could get credits for maintaining shade cover and not promoting full-sun exposure. As for reforestation, farmers would be rewarded for reverting from a full-sun system to shaded cocoa to planting trees and encouraging regeneration. They could also get credits for rehabilitating abandoned plantations and not letting them turn into low-productivity agricultural land or bush, which have low carbon-storage capacity.

“It is a potential win-win situation for everyone,” says Richards. “It promotes biodiversity and environmental sustainability, would ensure supply sustainability for the big cocoa buyers, and it could improve the livelihoods of thousands of small farmers.”

Potential vs. Practice

Potential is one thing. Practice is another.

“We’re all convinced that this area has real potential,” says Ken Norris, a researcher from the University of Reading and a scientist who has studied the relationship between carbon and cocoa farming systems in Ghana. “The problem is there are a whole lot of practical issues to overcome to make it work.”

For instance, because verification of carbon offsets is expensive, CO2 contracts typically apply to project areas that cover a minimum of 30,000-50,000 hectares. But the average cocoa farmer in Ghana is only 3-4 hectares of cocoa. Each contract, then, would require approximately 7,00-13,000 farmers to federate.

And carbon rights are not established in law yet – although many are going on the assumption that they will follow the timber rights outlined above, namely, that standing trees will fall under the jurisdiction of the Forestry Commission, while planted trees – and their largesse – will be owned by whoever plants them.

“This is a major organizational democracy initiative about benefit-sharing,” says Mason. “We’re trying to work out the best way of doing it, perhaps through existing community groups or organizations.”

Money

And, of course, there is the issue of funding. Norris estimated the project cost at US$5.5 million.

Cocoa carbon credits are not expected to flow for at least another two or three years – yet Mason says he is optimistic; he already has potential buyers.

“The cocoa industry is prepared to buy our credits as soon as we’re able to bring them to market,” he says, adding that he’s been working with the cocoa industry over the last three years – and his message is sinking in.

“It’s gone from ignorance and skepticism to the realization that a major shortage of cocoa beans is looming.”

But, he says, he is concerned about what’s been done to mitigate the crisis so far.

“All the big manufacturers are competing against each other when this is a time for a major concerted effort.”

The Ghana CocoaCarbon Initiative and associated effort to establish a Climate-Smart Agricultural Finance mechanism for Ghana’s cocoa sector could answer these concerns.   The two initiatives have already received funding support from the Gordon and Betty Moore Foundation,the Rockefeller Foundation, and Norweigan development aid agency, Norad.

Winning Industry Support

Mason also asked the cocoa industry to chip in. He recently presented the initiative at the launch of a new not-for-profit organization called Source Trust. Set up by Armajaro, a leading cocoa supplier whose clients include Cadbury, Nestlé, and Kraft, amongst others, Source Trust certifies and promotes sustainable cocoa-farming practices in local communities.

It already raised US$1 million to pay for education and water projects that promote sustainable farming, as well as bed nets that reduce malaria. Chocolate manufacturers pay Armajaro a premium of US$30 per ton in exchange for a traceable and sustainable cocoa supply.

“As an industry, our interest is to ensure that farmers have good yields over the long term, not just in the next couple of years,” says Nicko Debenham, head of traceability and sustainability at Armajaro and a spokesperson for Source Trust.

Encouraging farmers to leave 40% shade cover on their farm would serve that purpose. Debenham says Source Trust will assess its stakeholders’ interest in providing the US$4 million Mason requested for the cocoa carbon initiative. The carbon pilot project could also piggyback on Source Trust’s certification program as the administrative platform for carbon payments.

Outside the Box

It will take years before cocoa-industry stakeholders can answer the US$2.2 billion question. But the final answer could transform not only the cocoa industry and carbon trading, but farming as we know it.

“Instead of thinking about producing food to the detriment of the environment,” Norris says, “we could produce food to preserve the environment.”

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