Agroforestry and Finance

Agroforestry is a leading practice for advancing climate mitigation and adaptation and broader regenerative benefits and ecosystem services such as protecting and promoting soil and water health and biodiversity. In the context of the coalition’s work and objectives, agroforestry offers value through its applicability across various contexts and agricultural supply chains and its ability to realize livelihoods and nature-related co-benefits. 

Despite its ability to realize social and environmental value, insufficient funding flows to agroforestry, with even fewer resources supporting smallholder agricultural systems. Existing funding tends to focus on mitigation rather than communities’ adaptation and resilience needs; too large, designed for large-scale operations rather than the SMEs and smallholders underpinning global supply chains; and too expensive, with unrealistic risk mitigation requirements and/or return expectations. We believe that this mismatch and associated under-funding largely stems from suboptimal information on the part of climate funders and potential project developers on what climate finance looks like on the ground, lack of understanding of community priorities, and actual project costs. Subsequent financing assessment efforts will expand into smallholder agricultural activities beyond agroforestry, but agroforestry is the initial focus.

The Pro-Forma Agroforestry Model

CASH aims to produce a coordinated solution to this problem via the collection of CASH member information and the production of a pro-forma agroforestry model that closely models archetypal smallholder operations as they are on the ground. The Coalition aims to elucidate the characteristics of smallholder agroforestry projects, estimate their potential costs, assess the feasibility of investments for potential investors, and determine the required funding and financing options necessary for their execution. This includes exploring avenues such as philanthropy, carbon credits, and other prospective revenue streams. This analysis aims to generate insights and identify strategic leverage to address information gaps and activate resourcing.

CASH coalition members represent a diverse set of farmer communities and great heterogeneity in crop type, ecosystem, and intervention approach. However, we believe that projects can be usefully grouped into archetypes to facilitate the identification and development of common and scaled tools to be used despite the inherent complexity of the space. CASH is working with members to build a pro-forma agroforestry (AF) model or set of models. Developing a set of pro-forma AF models will allow us to systematically understand financial needs and potential sources of revenue associated with the development, bundling, and scaling of projects. CASH has decided to focus on agroforestry as a beachhead because of its social and environmental potential and the expertise of members in this area.

Through the development of archetypal models, we will be able to carry out sensitivity analyses, determine costs and benefits, model scaling and bundling of projects, assess the impact of different financing streams, understand points leverage for finance, and model fair revenue splits between stakeholders. In turn, this will allow us to understand what it takes to transition farming systems into more productive states (restoration), how to maximize impact per dollar, and model the monetary benefits of scale and cooperative action. Importantly, this exercise should also assist us in identifying crucial leverage points in the process – areas where interventions yield the greatest impact on farmer revenues or investor/philanthropy returns.

A clear picture of archetypal projects and financial needs necessitates the following next steps:

  • Develop the first cohort of investible projects/portfolio of projects: Understanding common agroforestry project types across the CASH farmer base will allow us to choose a particular type of project to focus on for the first portfolio of projects (eg. focusing on high-density agroforestry in Africa).
  • Develop a smallholder-centric “ideal” financial product: Understand the financial products needed to best serve smallholder farmers. In other words, name and address common financial challenges, bottlenecks, and areas of leverage that affect CASH members and their work to then develop a financial product around these needs 
  • Transition into the fundraising stage: CASH can confidently raise and efficiently allocate finance for transformation, understanding how much is needed, where, for what, why, and when, facilitating advance project development. 

Vision / Goals 

Develop a financial product that can finance smallholder farmer agroforestry at scale, offered on the market and accessible by CASH membership to enable smallholder farmers and local communities to transition to regenerative practices that provide ecological services, income generation, and livelihood co-benefits. The goal of the financial product is to enable smallholder farmers/communities to transition to sustainable and ideally regenerative land management practices that ensure the provision of ecological services and production of agricultural goods for sustenance and income generation

The model will enable:

  • Granular understanding of financing needs for smallholder agroforestry projects
  • CASH members can access working archetypes and financial models that closely resemble on-the-ground realities and can be iterated to local conditions or to improve the model
  • The value of carbon and non-carbon benefits is measured and remunerated
  • Pathways identified (or blockers identified) to compensate farmers for the value created through carbon and non-carbon benefits. This will inform advocacy and lobbying to create those compensation mechanisms where they are lacking and increase demand where mechanisms are functioning (carbon).
  • An investable portfolio of projects is developed and ready for marketing. 
  • Resource needs and a fundraising ask are clearly articulated. 

To execute this vision, we have identified several potential workstreams.

Potential Workstreams

AREA 1: Research

Agroforestry Archetypes Analysis – Survey agroforestry practices across CASH’s network of farmers. Develop a taxonomy of farmers, farm models and farming types, practices, and knowledge, among other factors, to understand the work of CASH members. Analyze the effectiveness of practices and produce learnings. Analyze transferability and wider applicability of practices and outcomes to new projects and demonstrate confidence in outcomes). 

Project Pro Forma Analysis – Develop a unit economics-based analysis for each archetypical CASH member project to more systematically understand financial needs and potential sources of revenue. The research will initially focus on an agroforestry archetype (potentially with multiple archetypes/models within agroforestry) and then expand by prioritizing archetypes that by volume, are the most common across CASH members. The pro forma model will assess all potential revenue options (carbon and non-carbon), including agricultural products, non-timber forest products, and ecosystem services compensation such as carbon, including but not limited to water conservation and biodiversity credits. 

AREA 2: Financial Product Development

Additionally, the pro forma model will enable us to consider possible funding mechanisms for these projects, including the creation of funds, lending facilities, and guarantee structures. 

Project Development and Learning – The Coalition Global Team will assist CASH members in advancing individual carbon projects by providing financial and advisory support. This process will concurrently enable members to actively learn and share knowledge on carbon development and financing processes.

Advanced Market Commitment (build demand) – Scope the optimal positioning and partners for a smallholder/community-focused carbon credit Advanced Market Commitment (AMC) to stimulate demand for carbon and the many benefits that smallholder farmers bring. Understand how to differentiate this type of credit/project from other credits/projects on the market and stimulate increased demand.