International ConferencE ON: “Economics and Politics of Chocolate”

1. International ConferencE ON: “Economics and Politics of Chocolate” ------------------------------------ Leuven, 16-18 September, 2012 “Developing sustainable cocoa value-chains through the use of private-public partnerships : the IFAD experience in Sao Tomé e Principe” By: Mr. Andrea Serpagli - IFAD CPM, STP – a.serpagli@ifad.org

2. Sao Tomé e Principe : 1,001 KM2 and 164,000 inhabitants

3. Background: how the whole story started (bio-cocoa value chain) • São Tomé: largest international cocoa exporter in early 1900s : 40,000 MT in 1930 • After independence (1975) steady drop of production till 4,000 MT in 1990 • Land reform (WB supported) in the mid-nineties: 8,000 smallholders were created • In 1995, IFAD, in cooperation with France, put in place a «National support to smallholders programme (PNAPAF)» which included extension services, diversification, rural infrastructure and microfinance • Price volatility of cocoa, the major source of smallholders’ revenues in STP, was devastating: from USD 1,300/ton in January 1998 to USD 700/MT in December 1999. Smallholders were abandoning their lands; • In 2003, IFAD started funding a new programme (12 years): the “Participatory Smallholder Agriculture & Artisanal Fisheries Development Project (PAPAFPA)”; • Contact was made with KAOKA (leading enterprise in the French chocolate market). New marketing strategy recommended, based on: aromatic and origin features + organic certification to access niche EU markets • New intervention strategy based on: PPP establishment + stable price + quality premiums + turn producers into professional market players (CECAB created)

4. WCA Sao Tomé and Principe: Support to Organic and Fair-Trade Value ChainsPAPAFPA 2012 2003 • Project achievements Organic cocoa value chain 53 Communities covered: Producers supported: 1879 (599 women) Dried beans exported: 2005 MT (since 05) One PPP established in 2004 with French partner/buyer (KAOKA) Fair-trade cocoa value chain 17 Communities covered: Producers supported: 575 (123 women) Dried beans exported: 182 MT (since 09) One PPP established with UK partner/buyer (CaféDirect) • Participatory Smallholder Agriculture & Artisanal Fisheries Development Project (PAPAFPA): • Starting date: Feb. 03 • Closing date : March 2015 • Total cost: USD 16.5 M (USD 9,5 M as IFAD loan + 3 M as IFAD grant + 4 M as local Gov. / AFD / private sector contributions) • Main value chains targeted: • Organic Cocoa (2005) • Organic Pepper (2007) • Fair-Trade Cocoa (2009) • Organic coffee (2010)

5. PAPAFPA: some information on supported trade ORGANIC COCOA VALUE CHAIN FAIR-TRADE COCOA VALUE CHAIN Exporter: CECAQ-11 (cooperative, created in 2009), with 17 member associations active in 19 communities Fair-trade certified (FLO, June 2010) Technical (production/trade assistance): provided under PAPAFPA (through local ONG - Zatona) and by foreign buyer (CaféDirect) – Example of PPP Buyer: CaféDirect (main UK drink manufacturer) CECAQ-11 & Café Direct: signed trade contract in 2008 for 18 months - Renewed Sales based on agreed price, including fair-trade + quality premiums (to be invested in social infrastructures/services) Export figures (to UK, Italy and Germany): - 2009: 12 MT - 2010: 45 MT - 2011: 96 MT - 2012: 29 MT (as to June 2012) • Exporter: CECAB (cooperative, created in 2005), with 53 members associations active in 62 communities (3 in Principe) • Organic certification: 2005 (Ecocert) • Technical (production/trade assistance): provided under PAPAFPA and directly by foreign buyer – Example of PPP • CECAB: independent as from January 2012 • Buyer: KAOKA (main French chocolate manufacturer) • CECAB & KAOKA: signed 5 years trade contract in 2005 – Further extended • Sales based on agreed price, including organic + quality premiums (invested in social services) • Export figures (to France): • 2007: 67 MT (profits: +350%) • 2008: 327 MT (+490%) • 2009: 490 MT (+ 50%) • 2010: 448 MT (draught) • 2011: 472 MT (draught ) • 2012: 201 MT (as to June 2012)

6. PAPAFPA coverage (2012)

7. Terms of the private-public partnership (PPP) IFAD • Sound expertise in community development and producers’ organization • Facilitated access to local institutions responsible for development of rural areas • Delivery of money (at very concessional terms) for infrastructural and productive investments; technical assistance and institutional building • Ensuring long-term follow-up and evaluation of the intervention LOCAL GOVERNMENT • Ensure institutional/financial support to intervention (as per original agreements) • Provision of some further support in terms of: land for investments, TA, inputs, brokerage etc PRIVATE Foreign Partner • Provision of technical know-how (at a: production, processing, logistic and marketing level) very tailored on target markets and otherwise difficult and expensive to procure • Guaranteed access to niche-markets (on EU selected markets) • Certainty of purchases (in quantity terms) and of prices paid (fixed according to previously agreed price schemes) • Willingness to operate within provisions of ethical schemes (organic and fair-trade ones) • Making available financial resources as cash for investments and premiums for community’s development Local Producers (small-holders) • Making available land, labour and some capital • Commitment to operate/sell through primary/apex POs and produce/process according to “ethical” standards

8. Private partners’ views on outcomes of PPPs(quotations from presentations/articles etc.) • “Strengthens our directness with and understanding of grower communities” • “Allowed us to benefit from skills and expertise outside our usual area of operations” • “Opened up new partnering with local government, scientific bodies and NGOs” • “Risk sharing” • “High quality product developed and delivered in short time” • “Builds our brand differentiation in the market place” • “Allows us to deepen and widen our impact as a social enterprise business”

9. Producers’ views on outcomes of PPPs • Producers’ organizations are now selling dried (and not fresh) cocoa beans: more value-added remains with producers • Export (trade) of processed products is done directly by export cooperatives and not through intermediaries • As a result, incomes have more than doubled as compared to selling through traditional marketing channels • Risk sharing • Trade terms (quantities, quality features, prices, dates of delivery) are negotiated (and, then, known) in advance • Money is also available for community/social investments (thanks to organic/fair trade premiums) • Self-esteem of producers increases: from labourers to entrepreneurs

10. The sustainability issue • ECONOMIC SUSTAINABILITY: Roots: (a) Farmers=Professional market player; (b) Direct trade of dried (not wet) beans by grouped farmers/suppliers; (c) Targeting rewarding, niche markets in EU and not undifferentiated domestic market; (d) Known/agreed trade terms (quality requirements, prices, premiums -size and use); (e) Risk sharing; (f) Mutual trust and support. Effects: (a) Farmers’ value-added increased by selling dried and not wet beans; (b) Direct sales by the Co-operative (CECAB or CECAQ) and not through intermediaries; (c) > two fold increase in sale prices in just few years. *********************************************************************************** • ENVIRONMENTAL SUSTAINABILITY: Roots: (a) Use of production and processing practices environment-friendly (under organic and fair-trade standards’ norms); (b) Use of natural inputs (sun, wood, sisal etc.). Effects: (a) No harmful impact on environment from used production/processing practices (use of: compost, solar drying technology, water recycling etc.); (b) Scaling-up effects at communities’ level, on natural park conservation and tourist capture; (c) Decrease of risks for human health *********************************************************************************** • SOCIAL SUSTAINABILITY: Roots: (a) Use of “Community Driven Development” approach ensured full ownership (of business, technology, development process etc.) and fair sharing of benefits; (b) Business run according to “ethic” principles (under organic/fair-trade prescriptions) and by partners committed to sustainable development Effects: (a) Self-esteem effect: community members (farmers) from labourers to entrepreneurs; (b) New services (health centres, purchase of drugs, credit etc.) put in place to the benefit of trading communities and using trade premiums; (c) Introduced new production/processing/trading technology very simple and therefore easily and fully owned by final communities