By Florence Bernard
What often prevents public and/or private
bodies to invest in sustainable land use practices is a lack of tangible
information to decide between several options against comparable metrics,
reliably inform expectations of risk and return, for informed investment
little data, if any, is available on either the financial requirements or performance
of various sustainable land use practices.
One of the key objectives for the
ICRAF-led SECURED Landscapes (Sustaining
Farmer in Cameroon explaining latex tapping. ICRAF and TMP are working on a project to understand how public and private financial investors can be encouraged to provide capital for sustainable land use practices Ecosystem and Carbon benefits by
Unlocking Reversal of Emissions Drivers in landscapes) project, is to
understand how public and private financial investors can be encouraged to
provide capital for sustainable land use practices. TMP Systems
– a finance and technology consultant focusing on asset management, economic
development and climate change – provided technical guidance on this area with
assistance from ICRAF.
TMP Systems has built financial models
that help to determine whether certain sustainable agricultural practice projects
being piloted by ICRAF are financially profitable, and how they compare with the
practices currently in place. Using field data from the country projects, they
found for instance that the suggested sustainable practice in Indonesia (replacing
oil palm plantations with Jelutong latex
tree) showed a profitable return which was more than coffee agroforestry system
but less than oil palm system.
The sustainable practice suggested in
Vietnam (intercropping of maize with Acacia
Mangium and Melia Azeradach) did
not show a profitable return, however it did significantly improve on the base
case scenario (mono-cropping of maize, cassava and rice).
Another key finding from the TMP Systems
study was that combining improved production practices with post-harvest value
chain upgrades (such as in areas of storage, energy, transportation, training
and collective aggregation, etc.) can provide optimal outcomes in terms both of
sustainability and livelihoods. However much of the data that would usually be
required to develop such financial model was not available so TMP Systems had
to rely heavily on proxies for certain inputs. It follows that better data and
more robust financial models are needed to provide accurate cost benefit
analysis that meets the needs of investors.
Building on the analysis of existing
routes to finance for sustainable land use practices, TMP Systems recommends
that public and philanthropic money should be used to make sustainable land use
practices investment ready. This means developing enabling conditions for
production, access to market, and reporting. Then, in order to get to scale, aggregating
smallholder loans and securitizing cash flows through intermediary organizations
like ICRAF could be an attractive proposition to private financial investors.
To attract more public and private
financial investors, there is need to make sustainable land use practices an understandable
and attractive niche for investors, and to have more data that makes it easy to
value assets and returns. While need for
robust, reliable and comparable data is crucial, the cost of sending people out
to collect data is astronomical and even more for projects like ICRAF’s at smallholder
level. At the same time the reporting must be standardized and location
specific. To address this challenge, TMP Systems is currently developing a
Field Monitoring System that can combine self-reporting and a high level of automation.
This promises to be a major improvement on current methods in terms of cost,
efficiency, data quality and reliability, and adaptability to different local
contexts and investor requirements.