Deforestation-Free Cocoa | Peru

The Althelia Climate Fund is participating in a USD 12 million investment program in the Tambopata REDD+ Project in Madre de Dios, Peru, which will empower 1,100 farmers to produce sustainable cocoa while protecting the biologically diverse Tambopata National Reserve and Bahuaha-Sonene National Park. It’s a ‘payment for performance’ model: farmers receive financing on the condition that they won’t deforest further, will restore 4,000 hectares of degraded land in the buffer zone with cocoa-based agroforestry systems, and that a share of revenues from cocoa sales will go to investors. The project will work with farmers to gain Fairtrade and Organic certification, which ensures fair labor and organic practices and establishes a floor price of USD 2,000 per tonne of cocoa, plus premiums of USD 500 per tonne.

Key facts

The project protects 570,000 hectares of rainforest, ensuring that emissions of 4.5 million tonnes of CO2 equivalent are avoided by 2020
Althelia Climate Fund’s carbon asset-backed loan of USD 7 million is fully collateralized by the project’s emission reduction units (carbon credits). This means additional carbon finance is leveraged to support the protection of standing forest and the restoration of degraded lands, benefitting small farmers who otherwise lack finance
The Peru-U.S. debt swap fund, FONDAM, provides USD 2 million grant co-financing towards this project
The investment aims to produce at least 3,200 tonnes per year of certified deforestation-free organic and Fairtrade cocoa. This cocoa will be sold through a farmer’s cooperative, which will secure higher prices for members and full traceability of the product

The problem

The Deforestation-Free Cocoa initiative operates in Peru’s Tambopata National Reserve and Bahuaja-Sonene National Park. Although these are government-protected areas under the jurisdiction of Peru’s environment ministry (MINAM), the forest cover in Tambopata and Buhuaja-Sonene is shrinking, with an estimated 1,189 hectares lost every year. The construction of the South Interoceanic Highway has accelerated gold mining, wood extraction, and slash-and-burn agriculture.

When forests are cut down, carbon absorption ceases and the carbon stored in leaves, branches, trunks, roots and soil is released into the atmosphere as CO2 (if wood is burned or left to rot). Avoiding deforestation helps avoid greenhouse gas emissions. In other words, protecting forests plays a key role in fighting climate change.

The solution

The Althelia Climate Fund has provided AIDER, a Peruvian non-governmental organization, with a first-of-its-kind carbon asset-backed loan. The loan of USD 7 million is fully collateralized by the project’s emission reduction units (carbon credits). This mechanism allows AIDER and the Peruvian Natural Protected Areas authority (SERNANP) to leverage additional carbon finance to support the protection of standing forest and the restoration of degraded lands in the buffer zone through cocoa-based agroforestry systems, stabilizing land use and stopping migratory agriculture.

The project is currently issuing offsets under the Verified Carbon Standard and is also validated and verified under the Climate, Community and Biodiversity Standard. A Peruvian insurance company, Pací¬fico Seguros, has purchased offsets from the project, which is expected to avoid the emission of more than 4.5 million tonnes of CO2 equivalent by 2020.

AIDER currently works with 100 farmers associated in a cooperative, and aims to reach 500 farmers in 19 villages by 2018 in the buffer zone of the protected areas. AIDER is helping the farmers to restore degraded land and intensify agricultural production on farmland outside of Tambopata and Bahuaja-Sonene, as well as planting food crops and cash crops (cocoa) so farmers can earn a long-term livelihood and ensure their food security from a finite land area.

Helping the planet

Madre de Dios region, where the Tambopata National Reserve and the Buhuaja-Sonene National Park are located, is known as the “Biodiversity Capital” of Peru, one of the most bio-diverse countries in the world. It is home to over 50% of Peru’s mammal and bird species, and is the natural habitat for endangered and vulnerable species including the giant armadillo, black caiman, harpy eagle, giant otter and jaguar. Conserving forests also helps mitigate the emissions that cause climate change.

Helping people

The project established a farmer’s cooperative called Cooperativa Tambopata-Candamo (COOPASER) in October 2014. The cooperative is focused on associating farmers, organizing harvesting, processing and commercializing cocoa, with a goal of managing the entire 4,000 hectares of cocoa-based agroforestry systems financed by Althelia.

The cooperative is also introducing enterprise efficacy for the collection, fermentation, drying and export of high quality cocoa in larger volumes so that farmers can access better pricing in international markets.

By financing agro-ecological activities that produce certified commodities such as cocoa the fund directly improves the livelihood of small producers and farmers while generating revenues for investors through premiums for certified commodities, improved yield and reduced intermediation.

Ecotierra, a Canadian-Peruvian company supports the cooperative with finding a ‘route to market’ – helping overcome the most common barriers facing cocoa farmers in Peru.

At full scale, the investment will produce at least 3,200 tonnes per year of certified deforestation-free organic and Fairtrade cocoa. If cocoa prices hold at the 2014 level of USD 3,100 per tonne, this would translate into estimated revenues of almost USD 10 million per year for the cooperative. AIDER expects farmers to earn a USD 500 premium over the market price because of their organic and Fairtrade certifications.

Spillover effect

In Madre de Dios, AIDER has identified 40,000 hectares of degraded lands alongside the Interoceanic Highway suitable for quickly replicating the Deforestation-Free Cocoa model. The investment for such a scale would be USD 100 million, and has the potential to positively impact 12,000 farmers and their families and transform the economy of Madre de Dios into a sustainable green agroforestry economy. The Althelia Climate Fund is set to mature in 2021, at which point investors will be repaid and cocoa production is projected to be in full swing.