Sustainable Public Private Partnerships for the cocoa market – FCC proposal Presentation by Philip Sigley – Chief Executive Federation of Cocoa Commerce.

Sustainable Public Private Partnerships for the cocoa market

– FCC proposal

Presentation by

Philip Sigley – Chief Executive

Federation of Cocoa Commerce Limited

Put the record straight

• “Cocoa - a force for good in a challenging world”

• 2-3 million farmers• 20 million dependent on cocoa• Significant contribution to a

largely neglected rural economy

West Africa

• 1.5 million family farms (2 to 5 ha.)

• 10 million+ live on family farms• Struggling with poor infrastructure

and access to vital public services

• Backbone of some economies – has to help sustain transition/diversification

Objectives for all

• Need to emerge from the poverty trap

• Achieve healthy, educated and vibrant communities with hope for the future

• Economic growth focused on urban problems and diversification of economy

Economic Growth

Household Income

Capital Per Person

Population Growth and Depreciation

Public Budget

Consumption

Tax PaymentsPublic Investment

Household Savings

Negative

Mechanics of Capital Accumulation

Impoverished Household

Decline in

Capital per

person

Negative Economic

Growth

Zero Public

investmentbudget

Basic Needs

Zero Tax

Zero Savings

Population growth and Depreciation

Negative

The Poverty Trap

Poor Households

Capital per

person

EconomicGrowth

Public budget

Official DevelopmentAssistance

Population growth and Depreciation

Basic Needs

Humanitarian Relief

Savings

NegativePublic

Investment

Microfinance

Budget Support

Role of ODA in Breaking Poverty Trap

Rural

HouseholdCapital

per person

EconomicGrowth

Public budget

Official Development

Assistance Population growth and Depreciation

Basic Needs

Minimal Savings

NegativePublic Investment

Budget Support

What is actually happening in cocoa communities

Urban Sector

Negative Economic

Growth

Poor Household

Capital per

person

EconomicGrowth

Public budget

Official Development

Assistance

Population growth and Depreciation

Basic Needs

Minimal Savings

NegativePublic

Investment

Budget Support

Role of Development Partnership helping break the Poverty Trap in cocoa communities

Cocoa Community

SupportDevelopmentPartnership

Challenges• For the rural communities it is clear

• For the cocoa trade and industry it is how we can provide effective assistance without assuming the role of government

• How we ensure that we support the market sustainably without artificial pricing schemes and interference in commercial issues

Why?• Governments /NGOs focus on niche markets

• Niche markets will not deliver poverty alleviation for the vast majority of farmers

• Issues much deeper

• Public opinion of cocoa could be better

• Chocolate industry would like to raise a fund across the whole market to address issues of corporate social responsibility

Other considerations

• Donors – G8/G20 – have made “millennium promises” – commitments to Developing Countries and are falling short

• Chocolate is “mediagenic” and the cocoa supply chain stands criticised for not doing more – public ignorance of market complexity – we are an easy target

• Creative but careful intervention is possible

The cocoa farmer

• Why does he not invest in his own community?

• Income/ Means to invest?

• Structure of local government of his community?

• Other – free riders on the back of his hard work?

Basis of proposal• Raise funds over whole market

• Not a direct tax on farmers

• Do not interfere in market prices or with individual company projects targeted at farmers

• Do not seek to assume responsibilities which are not appropriate i.e. Not responsible for things which are government responsibility

Focus of proposed system

• Create a fund in partnership with origin governments and donors

• Fund to be used for social infrastructure in cocoa communities eg Health, education, water, sanitation, roads

• Such plans to be fully coordinated with National Plans

Outcomes• Cocoa communities strengthened in those areas

which have appeared to be the domain of niche markets and in respect of which consumers have expectations

• Funds will go to cocoa communities – local authorities – enabling them to deliver services on a sustainable basis going forward

• Create a framework within which rural communities can develop sustainable livelihoods – achievement of MDGs

Current FCC project – infrastructure funding system

• Working with origin producers, trade, processing industry, chocolate industry

• Currently discussing technology implications

• Thereafter brainstorming on government/development agency support – Overseas Development Institute and Chatham

Working Title

• “Facilitating the New Paradigm for Development Partnerships in Commodity Dependent Countries

• Using technology to deliver Win Win Win Sustainable Solutions for agricultural commodities”

Why is this being developed?

• from the cocoa market and its attempts to find workable solutions as to how public private partnerships could be made to operate on a larger scale in developing countries in contrast to the huge raft of perennial pilot and small scale projects which never seem to shift the development curve along the “real progress” axis.

What is it intended to achieve 1• Connects consumer to farmer through funding

support for social infrastructure provision• Provides a fair funding mechanism for the supply

chain and establishing a development partner fund • Essential that private sector does not replace

government responsibility for provision of community services

• Private sector is a funding partner with governments and other institutions. Does not implement but is entitled to expect its partners to implement jointly agreed plans where the sustainability of cocoa and cocoa communities is a key consideration

What is it intended to achieve 2

• Addresses the imbalance of developmental support by which rural communities have lost out in government/donor priorities – a problem caused by current budgetary assistance focus of western development partners and priority setting

• Represents a blend of budgetary assistance with some precise but related targets – effectively budgetary assistance to local and district authorities tasked with the provision of public services to rural communities

EU and China

• Budgetary assistance maybe strengthening governance but many in rural communities do not see benefits delivered on the ground

• Chinese approach is to deliver the infrastructure in return for commercial contractual returns less involved with good governance

• We need a blend of approaches – world expects delivery of clear and tangible improvements in quality of life in developing countries and world systems that engender peace

Overarching project principle

• Help to empower rural communities – in our case cocoa communities

Cocoa Trade and Industry - status

• We have a number of modest initiatives addressing CSR concerns but with no material linkage with governments and development partners on a scale which can make a significant difference.

• Some programmes such as Farmer Field Schools, whilst significant compared to what has gone before, struggle to scale up because of social infrastructure issues.

• The culture of farmers investing in their own communities is at best patchy but in general is non existent and there is a general absence of leadership in such issues. It would appear that apathy has set in and a belief that conditions cannot improve

“Reinventing the wheel” and“Not invented here”

• when pilot projects reach completion another organisation sets out to prove exactly the same result in another country or region.

• Between all concerned we have a lot of people interested to deliver results but constrained by the framework in which we operate

PPP

• Pilot Projects in Perpetuity

Think Global act Local sounds good - but how to achieve it?

• Why win win win?• Win 1 is that the producing country should have a

clear incentive to participate and not to feel that the contribution to any new system becomes a tax on the farmers and that the sustainable solution in which they will engage can deliver real improvements in living standards for the rural population without creating any divisions within the country.

Win 2• Win 2 is for the international private sector which can

address on a major scale the challenges posed by civil society and consumers in relation to Corporate Social Responsibility and Global Citizenship within the very difficult smallholder farmer environment beset by many problems arising from poverty and lack of social infrastructure.

• If the cocoa trade and industry and in particular the major chocolate manufacturers can succeed with the communication of real change in cocoa communities and a major contribution to MDGs – then rural livelihoods will benefit in line with the long term health of the markets for our products

Win 3

• Win 3 is the better and more effective use of the funding from donors/development partners and an improved structure to induce collaboration rather than competing projects – the scale of operation would allow participation by a broad representative group as opposed to a large collection of small initiatives each with overhead, reporting and management implications. These institutions will be able to point to meaningful change and achievement of International Development Policy

Link between the 3 Wins

• is of course Leveraged Funds – each getting more for its money than if it tries to go a separate path seeking to justify its own successes in competition with the others.

Important Considerations

• there is a real opportunity to work with proper development partners and country governments in a joined up way without private sector playing at being development agents.

• we do need however to have confidence in the accountability for funds injected and indeed if a robust system is developed this may provide a way to attract further funding for these ideas from other partners.

Target for support plans

• Local government in producing countries• E.g. District Assembly, Département• Why? – those structures are responsible for

delivery of community infrastructure (education, water, health, roads etc) and currently struggling to match resources with demands

• Private sector engagement and progress made = delivery against expectations from civil society and consumers

Caution

• We must however take care that our actions are not divisive and that the plans are carefully harmonised with the Government’s funding formula for local government as a whole. Where some communities within a district are not involved in cocoa we should nevertheless look at the support mechanisms respecting at all times the need for those communities to live in harmony. It would be a disaster if our interventions were otherwise.

Wide Appeal

• The bigger picture of our interventions could of course lead to wider involvement by those interested in the progress being made by the cocoa sector. For example, schools and local authorities in cocoa consuming countries linking with their counterparts in commodity producing communities

System• Broadly works on Unique Transaction Numbers

triggering a payment to a fund for matching with funds from other partners

• Web hosting service and selection of banks/institutions to facilitate collection, reporting and audit of funds and disbursement in accordance with scheme rules

• Community Development fund would feature in commercial contracts

• Does not raise issues of competition and focus of funds does not interfere with commercial matters – recipients are the local authorities in rural sector

Some final thoughts

• Human Rights and Business

• Some quotes from Ruggie Report

Ruggie Report 2008

• “Business is the major source of investment and job creation, and markets can be highly efficient means for allocating scarce resources. They constitute powerful forces capable of generating economic growth, reducing poverty….”

Root cause

• “The root cause of the business and human rights predicament today lies in the governance gaps created by globalisation – between the scope and impact of economic forces and actors and the capacity of societies to manage their adverse consequences”

Conclusion• The cocoa trade and chocolate industry is looking

at creative ways to build development partnerships to bring new hope to post conflict countries and in general to rural communities in commodity dependent countries

• Agriculture continues to deliver a breathing space whilst governments struggle to restructure and deliver a more diverse economy to achieve middle income status and beyond

• We need political will and donor support to make these plans a reality