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Unlocking the Potential of Smallholder Agroforestry Through Access to Finance: Insights from the CASH Coalition Panel at Climate Week

Climate finance is a powerful tool for addressing climate change and supporting rural livelihoods. Yet, despite the vulnerability of smallholder livelihoods on the frontline of climate change, the critical role of smallholder farmers in producing food in the Global South, and the significant contribution they can make to advancing climate solutions, climate finance has largely failed to reach hundreds of millions of smallholder farmers. 

Agroforestry systems offer a promising mechanism to channel climate finance to smallholders while realizing livelihood, regenerative, and climate co-benefits. However, financing and scaling smallholder agroforestry systems is fraught with unique challenges. Unlocking the potential of smallholder agroforestry was the focus of an engaging panel discussion titled No Smallholder Farmer Left Behind: Empowering Livelihoods and Action through Climate Finance, hosted by the CASH Coalition at Climate Week in New York.

The panel was convened before a capacity audience of seventy financiers, carbon developers, and representatives of organizations working in agroforestry, food systems, and smallholder agriculture. The panel was facilitated by Lakshmi Viswanathan, Carbon and Climate Finance Lead at the CASH Coalition (left) who led a discussion with (from left) John Mundy, Director of Global Partnerships and Climate Finance at One Acre Fund; Emma van de Ven, co-founder of Rabobank’s Acorn Program; Ricardo Bayon, co-founder of Encourage Capital; and Jack Kimani, co-founder, and CEO of the Climate Action Platform, Africa (CAP-A).

Understanding the Smallholder Difference

John Mundy, Director of Global Partnerships and Climate Finance at One Acre Fund, drew on the experience of One Acre Fund, which distributes 100 million trees per year to smallholder farmers, with the goal of planting a billion trees by 2030. He related how the complexity of scaling these systems requires a nuanced approach that goes beyond conventional agroforestry because “most smallholder farmers [encounter] food security pressures every season.” 

“The big difference between commercial conventional agroforestry systems is that the smallholder system in agroforestry is really based on producing healthier soils, keeping food production at a pretty high level – and maintaining that level of yield and productivity because you don’t want a decrease in food security.”

Mundy emphasized that traditional agroforestry models, designed for large-scale commercial farms, don’t translate well in the smallholder context.

“[It’s] not as easy as reaching out to one [commercial] farmer who has 1000 acres of land. If you are working with 1000 farmers [with one acre of land], each farmer has a different context. Each farmer is different. You have to work with and meet people where they are. And that increases… costs and implementation complexity”, Mundy explained.

Jack Kimani, co-founder and CEO of Climate ActionPlatform, Africa (CAP-A) highlighted the need to center the farmer in smallholder systems, a theme he and others would repeatedly return to: “One needs to think about what one is optimizing for when engaging with smallholder farmers. It’s an important question because it drives what the intervention looks like, and you might focus on the wrong type of optimization.” 

Emma van de Ven emphasized that “agroforestry requires continuous work, multiple harvests a year, [and] it’s much more labor intensive because you can’t use big machinery” and how Rabobank sees “more diverse benefits systems in smallholder farmer contexts than in larger contexts”, and yet “as a bank, we can’t finance smallholder farmers as well as we can finance large farmers.”

Ricardo Bayon, co-founder and Partner at Encourage Capital, highlighted the challenge of high transaction costs complicating the business case for smallholder agroforestry.

“You want a big project that takes a lot of money… News flash! Smallholder farmers are small”. Consequently, “you have to aggregate lots of small farmers together. [From] a financial perspective, what that does is increase transaction costs. You need to pay for that aggregation. [In] my experience, transaction costs don’t just disappear. Somebody takes them on”. 

Managing Incentives and Outcomes: Icing the Cake

Integral to achieving the full potential of smallholder forestry is the need for agroforestry systems to realize value for all stakeholders: financiers, carbon developers, farmer-facing organizations, and farmers. For smallholders, the priority is often gains in soil fertility and crop productivity. For investors, the focus may be on carbon revenue and long-term project sustainability. The challenge for intermediaries and project developers may be structuring projects that align objectives while minimizing transaction costs.

Panelists repeatedly emphasized that success requires that smallholder farmers be at the center of project design and outcome setting. This means recognizing their unique living contexts, local conditions, and market dynamics. 

Jack Kimani, CEO of CAP-A, emphasized how a pure focus on carbon can’t work in a smallholder context. To do so, one would need “trees that will be able to mature quickly, so that you will be able to cash in on carbon revenue”. However, “fast-growing trees like eucalyptus [do] nothing for the other crops [and] has negative impacts on the water table over time”. Instead, one must design smallholder agroforestry systems that “drive forward different livelihood aspects… to make the farmer see a much bigger uplift”.

Emma van de Ven related how “If you plant trees that don’t have any value to the farmer… that just have a future for carbon revenue, then they are not going to survive. Listening to the farmer is the most important thing you can do to mitigate your risks. That is also an important difference between the perceived risk that smallholder farmers are very difficult to finance; that they are very unreliable. They are actually very reliable if you take the perspective of the farmer. If I need to feed my family today and tomorrow, it’s very easy to predict what has my priority. [We need to] start with the needs of farmers and cater to those needs, so we make sure that trees will be taken care of. And then the investment of the trees can actually have long-term carbon revenue.”

Ricardo Bayon used the metaphor of a cake: “Increasing fertility, increasing yield, that’s the cake for smallholders.” He emphasized that in this context, “the role that carbon plays in terms of increasing livelihoods for smallholders is going to be relatively small”, indeed one should think of carbon finance and credits as “very thin icing” on the cake. Extending the metaphor, Bayon indicated one should “think of financiers as people who come for the icing. And they are going to try and make [the cake] mostly icing for them.”

Bayon cited the CASH Coalition’s financial model for smallholder agroforestry as a useful tool to see how you can maximize outcomes for farmers and the needs of investors and financiers: [What] we want is to make sure there’s a good balance of icing and cake… Because what we want is the cake for the smallholder farmers. [We] we need to look at it from both perspectives. 

A Hopeful Future for Smallholder Agroforestry?

Despite the challenges, the panelists expressed optimism about the potential of smallholder agroforestry and its power as a livelihood-enhancing and carbon-mitigation tool. John Mundy shared how “looking at our portfolio,” conservatively, One Acre Fund “can drive a thousand dollars of impact per farmer for over 150,000 farmers in these carbon pilots in the next ten to twenty years. We can drive over 750 million dollars of new revenue into the system.” He characterized “the opportunity” as “massive [and with] that size of the prize [we] can drive significant change on the ground in terms of increasing soil health, [and] increasing climate resilience.”

Emma van de Ven took a broader view, envisioning a future where “the carbon market becomes obsolete because supply chains will realize that… their entire existence is built on (smallholder) farmers who grow their commodities… that in fact, we need to start regenerating the soils and rehabilitate the areas that have been impacted by climate change the most.” She emphasized how “for me, the carbon market has always been a tool to make action happen in the short term. But my hope is that the supply chains and the financiers who finance those supply chains realize how big the risk of climate change actually is, but there are also solutions and mitigation options [available].”

Realizing the Opportunity

The panel called for innovative solutions to bridge the gaps in smallholder agroforestry. Jack Kimani emphasized the importance of “[putting] farmer livelihoods at the center of… the implementation and design of the intervention, and ensuring that it remains a core part of the programming” then “we [can] get hundreds of millions of these farmers improving their livelihoods and actually providing a positive contribution to addressing the climate crisis.”

Lakshmi Viswanathan noted how smallholder agroforestry is about more than just planting trees and generating carbon credits. With the right project design, smallholder-focused agroforestry systems can deliver environmental and social benefits, helping farmers improve soil fertility, increase yields, enhance food security, and diversify income streams. By solving the puzzle of aggregation, smallholder agroforestry systems can scale massive gains, ultimately building climate-resilient communities and unlocking economic opportunities for those who need them most. 

The CASH Coalition’s portfolio of smallholder carbon projects and agroforestry modeling is an important step in this direction. As Bayon put it, paraphrasing Yogi Berra, “In theory, there’s no difference between theory and practice. But in practice, there is.”

Uncovering and meeting the challenges of smallholder agroforestry design and implementation and broader interventions to finance smallholder carbon projects and the transition to regenerative agriculture will be iterated and realized on the ground. With farmer livelihoods at the center, communities, financiers, and other market actors must work together to unlock the full potential of smallholder agroforestry to address climate and rural poverty.