Document of
The International Finance Corporation
GLOBAL: BIODIVERSITY AND AGRICULTURAL COMMODITIES PROGRAM (BACP)
GEF Project Brief
May 2006
iii
Table of Contents
I. Project summary 1
A. Introduction 1
B. Project Rationale 2
C. Status and Role of Private-sector-led, International, Multi-stakeholder Commodity Roundtables 5
D. Background on Global Significance of Biodiversity Affected by BACP’s Target Commodities 7
E. Background on Impacts of Production on Biodiversity, Better Management Practice Alternatives, and Barriers to Adoption 11
F. The IFC’s Role in Agricultural Commodity Markets 16
G. The IFC’s experience with market transformation 19
H. Program Objective and Outcomes 20
I. Program Activities 21
J. Benefits to partners 26
K. The BACP Project Cycle and Project Selection Criteria 29
L. BACP Management 34
M. Monitoring and Evaluation 39
N. Risk Analysis 40
II. Country ownership and partner Selection 43
A. Country Selection and Eligibility 43
B. Country Endorsement 45
C. Partner Selection 45
III. Program & Policy Conformity 46
A. Project design and target activities: role of the private sector 46
B. Rationale for GEF Involvement 47
C. Sustainability 50
D. Replicability 51
E. Stakeholder Involvement 52
IV. Financing and Cost Effectiveness 54
A. Program Budget (to be refined during appraisal) 54
B. Basis for Possible Second Phase of BACP 56
C. Co-financing and Leverage 58
V. Institutional Co-ordination & Support 59
A. Core Commitments & Linkages 59
B. Consultation, Coordination and Collaboration between IAs 61
List of Tables
Table 1: Summary of IFC Asgribusiness Department's Investments in BACP's Target Commodities …………………………18
Table 2: BACP Risk Analysis 41
Table 3: Land use, production volumes, and annual value of BACP's target commodities 46
Table 4: BACP Phase 1 Budget 56
List of Figures
Figure 1: Overlap of cocoa-growing regions and biodiversity hotspots 3
Figure 2: Oil palm plantation 9
Figure 3: Cocoa tree 10
Figure 4: Sugarcane harvest 10
Figure 5: Soybean plant 11
Figure 6: Graphic depiction of the BACP's market transformation goal 21
Figure 7: The BACP Project Cycle 30
Figure 8: BACP Organizational Structure 36
Figure 9: Gantt Chart for first Phase of the BACP 38
List of Annexes
Annex 1: Overview Of Selected Agricultural Commodity Markets (Palm Oil, Cocoa, Sugarcane, And Soybean)
Annex 2: Maps And Tables Related To Production And Export Of Bacp’s Target Commodities
Annex 3: Summary Of Findings Of Pdf-B, Including Selection Process For Target Commodities
Annex 4: Roundtable On Sustainable Palm Oil: Principles And Criteria
Annex 5: Definition Of High Conservation Values For Forests
Annex 6: Portfolio Of Sample BACP Project
Annex 7: Monitoring and Evaluation Plan
Annex 8: Logical Framework
Annex 9: Incremental Cost Analysis
Annex 10: List Of Letters Of Intent On File With IFC
Annex 11: Compliance With IFC’s Social And Environmental Safeguards
Annex 12: STAP Review
Annex 13: Response To External Review
Annex 14: Response To GEF Council Members’ Comments
ACRONYMS
BACPBMP
BSI
CAG
CBD / Biodiversity and Agricultural Commodities Program
Better Management Practice
Better Sugarcane Initiative
IFC Agribusiness Department
UN Convention on Biological Diversity
CEEF / The Commercializing Energy-Efficiency
CFL / Compact Fluorescent Lamps
CI / Conservation International
EBFP / Environmental Business Finance Program
ELI / Efficient Lighting Initiative
FI / Financial Intermediaries
FTE / Full-Time Employee
GEF / Global Environment Facility
HCVF
HEECP / high-conservation-value forest
Hungary Energy Efficiency Co-finance Program
IFC / International Finance Corporation
IUCN / International Union for the Conservation of Nature
IPM / Integrated Pest Management
MAMTI / Marine Aquarium Market Transformation
MPOA / Malaysian Palm Oil Association
M&E / Monitoring and Evaluation
MoU / Memorandum of Understanding
NBSAP
P&C / National Biodiversity Strategy and Action Plan
Principles and Criteria
PELP / Poland Efficient Lighting Project
PENSA / Program for Eastern Indonesia SME Assistance
RA / Rainforest Alliance
RRSP / Roundtable for Responsible Soybean Production
RSPO / Roundtable on Sustainable Palm Oil
TA / Technical Assistance
TATF / Technical Assistance Trust Funds
TNC / The Nature Conservancy
TOR / Terms of Reference
UNDP / United Nations Development Program
WB / World Bank
WCF / World Cocoa Foundation
WWF / World-wide Fund for Nature
iii
Biodiversity and Agricultural Commodities Program
I. Project summary
A. Introduction
Agriculture and biodiversity
1. Agriculture is the largest industry on the planet. It employs more than one billion people and generates more than one trillion dollars’ worth of goods annually. With its deep connections to the world economy, human societies, and biodiversity, agriculture poses some of the most important challenges for conservation of life on Earth.
2. The adoption of resource-intensive production methods, particularly for agricultural commodities, is exerting a substantial strain on the world’s biological diversity. As pointed out by GEF Operational Program #13 on the Conservation and Sustainable Use of Biological Diversity Important to Agriculture: “agricultural practices such as reliance on monoculture, exotic/cross breeds, high yielding varieties, mechanization, and misuse of agricultural chemicals have caused negative impacts on biological diversity at all levels - ecosystems, species and genepools - on both natural and cultural landscapes, and may be unsustainable, at least in the long term.”
3. While agricultural operations, whether large or small, provide unique opportunities to conserve biodiversity, they also can threaten wild species and natural habitats when not managed sustainably. Negative biodiversity impacts from agriculture include:
4. Habitat Fragmentation and Loss. Expanding agricultural frontiers contribute to the rapid loss of forests, wetlands, grasslands and other habitats, their biodiversity, and their valuable ecosystem functions every year. Runoff from poorly managed farms degrades downstream freshwater and marine habitat and leads to bioaccumulation levels that adversely affect fertility and fecundity of species of a wide range of trophic levels.
5. Degradation of Water and Soil Resources. Globally, agriculture withdraws 70% of the planet’s developed freshwater resources—this is twice the industry (20%) and municipal use (10%) combined.[1] Without creative conservation measures, farms can quickly consume a dry region’s water supplies, impacting specific species and critical habitats as well as biodiversity more generally. Where planting and production practices take insufficient account of soil ecology and fragility under conditions of high rainfall and steep terrain, there can be a wholesale loss of nutrients, structure, and diverse communities of soil organisms. Material that is washed away can damage downstream ecosystems (such as coral reefs) and economic infrastructure (such as dams). Half of all topsoil has been lost in agricultural areas as a result of unsustainable farming practices.
6. Pollution. Insecticides, herbicides fungicides, fertilizers, and other farm chemicals can contaminate soil, water, and air, and can remain in the environment for generations. Their broad-spectrum toxicity can destroy whole communities of organisms. Agriculture is the leading cause of pollution in countries that measure its impact. Many pesticides disrupt the hormone messaging systems of both humans and wildlife.
7. Poverty. Three quarters of the world’s poorest people live in rural areas where farming is the only option available to generate income, fight poverty and achieve food security. Small farmers the world over are found in high biodiversity areas that often are the least fertile areas for sustainable production. Once depleted of nutrients, such areas are often abandoned, leading to the colonization of new areas. The result is a cycle of increasing poverty and biodiversity loss.
BACP Objective: mainstreaming biodiversity preservation opportunities throughout the value chain.
8. The proposed Biodiversity and Agricultural Commodities Program (BACP) seeks to reduce, in an innovative and large-scale manner, the threats posed by agriculture to biodiversity of global significance. The primary objective of the BACP is to preserve global genetic, species and ecosystem diversity within agricultural production landscapes, by transforming markets for targeted agricultural commodities. The Program will integrate biodiversity into the production landscape, by moving sustainably-produced commodities from niche markets into the mainstream.
B. Project Rationale
Protecting biodiversity of global importance
9. The BACP will target commodities whose production threatens biodiversity of global significance, and which offer the potential for using market forces to reduce these threats. A careful selection process (see Annex 3) identified palm oil and cocoa as fast-track commodities in which to work, and soybean and sugarcane as “next in line” for the BACP’s focus. The BACP’s selection of target countries for each commodity takes into account production volumes, the impact of this production on biodiversity of global significance, and the potential for reducing this impact. The target countries are Indonesia (palm oil, cocoa), Malaysia (palm oil), Ghana and Côte d'Ivoire (cocoa), and Brazil (sugarcane, soybeans, cocoa and palm oil). During the Program’s ten-year lifetime, additional countries may be added as warranted.
10. Each of these countries contains high levels of biological diversity and/or endemism, some of which is in biodiversity hotspots that overlap with areas of commodity production. In Brazil’s Cerrado, a woodland savanna hotspot, the production and expansion of sugarcane and soybean is exerting tremendous pressure on the ecosystem, resulting in the fragmentation, degradation, and disappearance of habitat. The lowland Guinean forest in Ghana and Côte d'Ivoire is a prime cocoa-growing region. As productive cocoa farms become exhausted, farmers move into forested areas. In Indonesia and Malaysia, palm oil production and expansion are a concern for the Sundaland hotspot (Borneo, Sumatra, Java, and Bali). A cocoa farming boom on Sulawesi threatens wildlife in the Wallacea hotspot. The overlap between cocoa growing regions and biodiversity hotspots is clearly demonstrated in Figure 1 below:
Figure 1: Overlap of cocoa-growing regions and biodiversity hotspots[2]
Better Management Practices can reduce the impacts of agriculture on biodiversity of global significance, but they face barriers to adoption.
11. So-called Better Management Practices (BMPs) can significantly limit the biodiversity threats posed by production.[3] BMPs encompass a broad range of environmental, social, and labor practices that allow companies to optimize resource use efficiency, create marketable by-products, reduce waste, encourage employee loyalty, secure market access and the reduced risk of adverse relations with local stakeholders. They are largely market-driven and work best in situations where business and investors have medium- or long-term horizons. Currently, certain barriers prevent the widespread uptake of BMPs. The BACP will work with industry players in each target commodity market in order to mainstream the adoption of biodiversity-friendly and economic BMPs throughout the value chain.
Opportunities for leverage through organized markets and industry roundtable processes.
12. For three of the BACP’s four target commodities, an international multi-stakeholder industry-led roundtable is actively working to lessen the commodity’s impact on the environment and to address social issues. These roundtables (in palm oil, sugarcane, and soybean) and their members will be key partners for the BACP. They provide an entry point for BACP into industry decisions on environmental performance targets, principles, and criteria, and provide a collaborative environment for developing joint projects. For cocoa, although there is currently no roundtable process, one is being contemplated, and the BACP can also build upon existing industry fora and on relatively large niche markets.
13. Commodity markets are organized and therefore relatively easy to work in (See Annex 1 for an overview of the markets for BACP’s selected commodities). The concentration of industry in these commodities means that a relatively small number of players up the value chain (traders and buyers) have a relatively strong influence on demand, and thus on production. Globalization and consumer scrutiny have pushed companies to provide, and consequently to demand, more transparency with regard to their products as well as the ingredients they use. This trend towards accountability for both product quality and production practices has enabled larger companies to influence the entire market chain, including segments of it in which they do not directly invest. Although the extent of this phenomenon varies from one product or market to another, the intrinsic characteristics of a product are no longer enough to satisfy a number of consumers, especially in industrialized countries. They want to know that their purchases have not been produced or traded at the expenses of people or nature.
BACP Structure and Approach: a market-based approach to biodiversity conservation
14. The rationale for the BACP can be summarized as follows:
a. Production areas for oil palm, cocoa, sugarcane and soybeans overlap with areas of globally significant biodiversity;
b. BMPs can reduce the impacts of production on biodiversity, but face certain barriers to adoption;
c. Commodity roundtables and the overall market structure provide an opportunity for the GEF to make an incremental investment to jump-start and support market transformation efforts that lead to the mainstreaming of biodiversity protection opportunities into commodity markets.
15. Central to this rationale is the premise that there is great potential for working with the private sector, as highly organized players in a given market, to transform agricultural commodity markets so that biodiversity-enhancing, commercially-sustainable production methods are adopted across large areas of the production landscape, on a globally significant scale. The BACP will take a holistic approach to this market transformation, using its resources to mainstream the supply of, demand for, and financing to commodities produced using biodiversity-friendly methods. As a result of the program, better commodities should account for a substantial percentage of sales (at least 10 per cent) in each target commodity market. The Program’s structure reflects this rationale. Each component of the Program addresses a specific group of market actors including the supply-side (producers and primary processors such as millers), the demand-side (traders and buyers), the financiers, and the wider enabling environment (government and industry roundtables). Each group has a role to play in creating and maintaining a healthy market for biodiversity-friendly products. By addressing each of these parts of the value chain, the BACP can have a sustainable and long-term impact on the market for biodiversity-friendly commodities.
16. The BACP will promote changes in production methods that are both biodiversity-enhancing and financially sustainable in the long term. The IFC has selected commodities for which the private sector has already demonstrated leadership potential. The Roundtable on Sustainable Palm Oil (RSPO) has prepared and approved (by an overwhelming majority) a set of environmental and social principles and criteria. Similar roundtables are just getting underway for soybeans and sugarcane. Major off-takers in the cocoa industry understand the need for a supply of cocoa that is sustainably produced, and a cocoa roundtable is currently being discussed by certain major buyers. Yet for all four target commodities, the market is not yet delivering large-scale quantities of sustainable supply, because of the barriers mentioned above. The BACP represents an incremental investment that will allow consideration and adoption, at all levels of the value chain, of biodiversity-enhancing opportunities.