Presentation for Smallholder Mitigation: Mitigation Options and Incentive Mechanisms - Expert Workshop 7 - 8 July 2011


1. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Smallholders:
(Possible) finance & risk perspectives with respect to agricultural climate change mitigation interventions

2. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
•Who are ‘smallholders’?
•Why are they important?
•Why should they care about climate change?
•What makes them more likely to care?
•How can we identify those that are most interested, and how can we engage them?
•How do we identify those that are most important in terms of mitigation (or most at risk)? How can we engage them?
Some questions

3. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Some perspectives

4. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90Defined by:
•Socio-economic characteristics: livelihoods, gender;
•Resources (rather than area). For the purpose of financing, there are significant variations:
•Subsistence vs. commercial;
•Aggregated vs. not aggregated;
•Proximity &sale; Domestic vs. local urban centers vs. international .
A smallholder is…

5. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Categories & Sources of financing
Categories
•Domestic vs. foreign
•Dispersal mechanism (direct, through various instruments /intermediaries)
•Short term vs. long term
•Informal vs. formal Sources
•Self-financed & controlled
•Informal sources: friends & family (inside and outside country)
•Domestic & government supported banks
•Microfinance
•Trade & value chain finance
•ODA, NGO, philanthropy
•Carbon finance / other PES

6. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Business perspectivePossible Assets
•Land -size, fertility, proximity
•Animals
•Infrastructure, tools
•Labor –household
•Inputs
•Savings
•ContractsRevenues
•On farm sources
•Off farm sourcesPossible Liabilities & Risks
•Debts, other liabilities
•Contracts
•Production risks
•Farmer risks
•Institutional & governance risks
Costs
•Fixed, initial
•Recurring
Sources & mechanisms for financing?
How to minimize / better manage?
Size, timing, quality, variability, certainty of:

7. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90Initial thoughts on potential sources of funding (1)
Source
Pre-requisites?
Pros?
Cons?
Self-financed
•Liquidity
•Savings
•Confidence
•Fully invested, LT
•No collateral
•No aggregation
•Risk, high discount rate
•Smallamount
Informal
•Liquidity
•Confidence
•Re-investment
•No collateral
•No aggregation
•Disputes
•Favoritism
•Enforceability
Domestic & government (inc.NAMA, REDD)
•Scale
•Commitment
•[Financial literacy]
•[Collateral]
•[Data]
•Policylandscape
•Coordination
•Subsidized
•May be longer term
•Aggregation
•Policies
•Linkedto economic landscape & donor trends
MFI
•Ability to pay back/ plan
•Banks
•[Collateral]
•Direct
•Size appropriate
•Risk appetite
•Reach
•Density-based
•Pay-back
•Term
•History

8. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Initial thoughts on potential sources of funding (2)
Source
Pre-requisite
Pros
Cons
Trade / value chain
•Commercial
•[Aggregation]
•Confidence
•Support
Usually accompanied byincreased support & knowledge, incl. reduced risk
•Quality & quantity
•Farmers as price- takers
•[Term]
NGOs, Donors, Philanthropy
•Access
•Businessplan etc.
•[Aggregation]
•No repaymentrequirements
•Usually support
•[Distortions]
•[Elitecapture]
•Appropriateness
•Longevity
Carbon / PES markets
•Aggregation
•Data
•Meths
•Demand
•Complementary
•‘Co-benefits’ e.g. free inputs, TA
•Upfrontcosts
•Meths
•Uncertainty
•Transparency
AGGREGATION….

9. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Risk managementFarm / householdCommunity'Market'Diversify, reduce consumption, re- allocate labor, savings, sell assetsFamily, coops, buffers, jointly owned infrastructure Indemnity, index, ‘combined’

10. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Aggregation models -financing & risk
Model
Sub-model
Driven by smallholder
Farmer-controlled institutions
Associations,trusts, enterprises, coops, farmer owned companies
Contract farming
Leases
Driven by third-party
Contractfarming
Highly centralized
Nucleusestate
Multipartite
Informal
Intermediary
Tenant farming / share cropping
N/A

11. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90CARBON & PES ‘MARKETS’
CSR, SHARE HOLDERS
GOVERNMENT POLICIESAGRI- INVESTMENTS (direct) SMALLHOLDERS
'AGGREGATORS'UNFCCC
UNCCDBRETTON WOODSWTONo silver bullet… Mechanism has many parts @ multiple scalesCOMMODITY MARKETS (2ndary)

12. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90Mechanisms –initial thoughts
•“Know your client”
•Aggregation
•Risk appetites: ‘Hard’ & ‘soft’ instruments
•Availability of long term capital with high risk appetite –creative PPPs
•Shorter termed financing -Track record, collateral
•Lack of data –financing, mitigation opportunities
•Identifying synergies
RESEARCH (‘CUSTOMER BASE’)
POLICY & REGULATION
FINANCE & RISK MANAGEMENT DESIGN

13. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90Thank you!

14. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
4. Mitigation –Some Observations
•Activities designed within the farmers existing livelihood context of smallholders (including women)
•Bottom-up approaches both in financing (allocating funding according to the plan elaborated with stakeholders and farmers) and project arrangements
•Promoting coordination and association amongst smallholders
•Literature review and review of case studies highlight the value of carbon finance linked to measurable output rather than related only to land ownership.
•Gender considerations are important in mitigation project configuration (including benefit distribution and land tenure rights)
•Products from carbon credit projects could be used by smallholders as collateral
•Project standards should work toward streamlining procedures and reduce transaction costs
•Opportunities for setting up carbon insetting activities by building the costs of ecosystem services into supply chains (e.g. by means of a scheme like Plan Vivo).

15. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 902. Global farming systems
•FAO Farming Systems work
•Global trends affecting farming systems:
•Environmental / physical
•Economic
•Socio-political
•Technologies
•Gender
•Representation of smallholders in production & forms of representation
•Fundamental difference: Subsistence vs. selling
•Smallholder driven: Coops, leasing
•Non-smallholder driven: Contract (centralized, nucleus, multipartitie, informal, intermediary), tenant / share cropping

16. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
2. Global farming systems: Observations
Regional perspectivesLatAm: Smallholders tapping international markets through premium labeled commodities. ‘Least’ favored. Asia: Huge pressures & importance of adaptation in major crops (rice) SSA: ‘Donor darling’, commercial aginterest & urbanizationObservations
•Smallholder-relevant data: weak but evolving
•‘Supermarketization’ & tech provides opportunities for vertical and horizontal integration and coordination
•Holistic government policy formulation critical

17. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 905. Opportunities for engaging smallholders

18. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90State of flux

19. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 904. Mitigation –c-credit monetization opportunities Potential opportunities:
•Conservation ag
•A/R & silvopastoralsystems
•Improvement management
•Compost
•Bio-energy
•Organic farming
•REDD
•Eco-labeling
Current opportunities for developing countries to sell units of mitigation: International: UNFCCC CDM, VCMs (under standards & non-standard offsets) Regional: US markets (California) National & sub-national: China (?), S. Korea (?), official REDD+ and NAMAs (?)

20. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
Global mitigation schemes
Prosfor smallholders
Cons for smallholders
CDM
•Well established mechanism
•Recognisedat the global and national level
•Hightransaction costs
•Long time lag
•Only A/R land use activities
•LDCs poorly represented
VCS
•Wide range of terrestrial mitigation activities
•Innovative buffer approach
•Hightransaction costs
GroupedProjects/
PoA
•Lowertransaction costs
•More flexibility and streamlined procedures
•Credits become bankable earlier
•Possibility to include underrepresented countries
•Stillin an experimental phase
•Few or no land based projects
CCBS
•Communitybased projects
•Guarantee to investors for high quality projects
•Pro-poor and adaptation gold level
•Improvement in smallholders access under evaluation
•It has to be combined with a carbon standard
•High quality credits might mean more complexity
Plan Vivo
•Longexperience with smallholders
•Equitable carbon sharing
•Tailor-made to community/smallholder needs
•Possibility to have PES along the value chain
•Improve access to financial instruments (e.g. bank loans, microcredits)
•Plan Vivo certificates can be also issued ex-ante
•Gender inclusive
4. Mitigation –c-credit monetization opportunities

21. Tanja Havemann | tanja.havemann@beyondcarbon.ch | +41 78 664 27 90
•GmbH start-up : May 2010
•International, national & project level work
•‘Theoretical’ & real
•Carbon finance & non-carbon finance
•Business planning & development
•Cynical optimist
Who am I?