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Biodiversity and Agricultural Commodities Program (BACP) - Annexes

Biodiversity and Agricultural Commodities Program (BACP)

LIST OF ANNEXES

ANNEX 1: OVERVIEW OF AGRICULTURAL COMMODITY MARKETS FOR PALM OIL, COCOA, SUGARCANE, AND SOYBEAN..........................................................2

ANNEX 2: MAPS AND TABLES RELATED TO PRODUCTION AND EXPORT OF BACP’S TARGET COMMODITIES..........................................................................................6

ANNEX 3: SUMMARY OF FINDINGS OF PDF-B, INCLUDING SELECTION PROCESS FOR TARGET COMMODITIES..........................................................................15

ANNEX 4: ROUNDTABLE ON SUSTAINABLE PALM OIL: PRINCIPLES AND CRITERIA ...............................................................................................................................20

ANNEX 5: DEFINITION OF HIGH CONSERVATION VALUES FOR FORESTS.....23

ANNEX 6: PORTFOLIO OF SAMPLE BACP PROJECTS.............................................24

ANNEX 7: MONITORING AND EVALUATION PLAN..................................................42

ANNEX 8: LOGICAL FRAMEWORK................................................................................48

ANNEX 9: INCREMENTAL COST ANALYSIS................................................................52

ANNEX 10: LIST OF LETTERS OF INTENT ON FILE WITH IFC............................59

ANNEX 11: COMPLIANCE WITH IFC’S SOCIAL AND ENVIRONMENTAL SAFEGUARDS ...........................................................................................................................60

ANNEX 12: STAP REVIEW...............................................................................................62

ANNEX 13: RESPONSE TO EXTERNAL REVIEW.......................................................79

Annex 14: RESPONSE TO GEF COUNCIL MEMBERS’ COMMENTS........................86

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Biodiversity and Agricultural Commodities Program (BACP) – Annexes

Annex 1

ANNEX 1: OVERVIEW OF AGRICULTURAL COMMODITY MARKETS FOR PALM OIL, COCOA, SUGARCANE, AND SOYBEAN

Palm oil

Uses. Palm oil can be separated into a range of distinct oils with different properties that can be used in a large variety of products which, in the past, contained animal or other vegetable oils. Palm oil is used as a cooking oil; it is the main ingredient for most margarine; it is the base for most liquid detergents, soaps, and shampoos and, in its most dense form, serves as the base for lipstick, waxes, and polishes. It is estimated that palm oil is found as an ingredient in more than 10 per cent of all consumer goods products in a supermarket including, chocolate, snack foods, detergents, toothpastes and shampoo.

Production location: The oil palm (Elaeis guineensis and E. oleifera) cultivated in Africa, Latin America and Southeast Asia. More than 80% of the exported palm oil production comes from Malaysia and Indonesia; other significant palm oil producers are Nigeria, Thailand, Colombia, and Papua New Guinea.

Production type: Outside of its native West Africa, the oil palm is mostly grown on plantations in Asia and Latin America. In Southeast Asia, these plantations are usually established as monocultures in concessions ranging in size from 4 square km (400 hectares) to 729 square kilometer (72,900 hectares). In Malaysia and Indonesia, most production comes from large plantations, which typically own the mill that crushes their Fresh Fruit Bunches (FFB).

Small producers, who do not need machinery and who rely primarily of family labor, can generate profits selling their FFB to processors. Consequently, a system has evolved in Asia in which larger companies encourage small producers to plant oil palm, because the companies can then rely on them for part of the volume they need to make their mills viable. As FFBs need to reach a mill within 24 hours of harvest, the mills generally have a regional monopoly. About one-third of palm oil production in Indonesia and Malaysia comes from FFBs grown by smallholders.

Market structure: About 80 per cent of global palm oil production is exported and is traded on global markets. More than 150 countries import significant amounts of palm oil, but Europe (17%), China (16%) and India (14%) are the leading importers. As the end uses of palm oil are very diverse and there are low concentration rates of end markets, even the largest corporate buyers have only a limited ability to control and transform demand. The main industry concentration occurs at the producer level, where the members of RSPO account for 30-50% of the world’s palm oil exports.

Outlook. Palm oil is the fastest growing segment of the global vegetable oil market. It has been increasing its market share to the point where it now accounts for 28.3% of the world’s total

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vegetable oil consumption, compared with just 19.8% in 1990 and 14.5% in 1980.1 The expected additional demand for the biofuels market is likely to accelerate this general trend.

Status of industry discussions on biodiversity. Due to strong pressure from NGOs, the palm oil industry is well aware of it impacts on biodiversity, in particular from forest conversion and insufficient corridors for megafauna in the production landscape. The Roundtable for Sustainable Palm Oil brings together industry leaders to create a platform to discuss and address biodiversity (and social) impacts.

Cocoa

Uses. The production of chocolate and chocolate products consumes about 90% of the cocoa produced worldwide. The other 10% of cocoa is used in the production of flavorings, beverages, and cosmetics. These products include baking cocoa, hot cocoa mix, baking mixes, packaged foods, and cocoa-butter based body care products.

Production location: Cocoa (Theobroma cacao) is a cash crop grown throughout the humid tropics. Over 7 million hectares of cocoa are planted in 62 countries, but cocoa production is highly concentrated in West Africa. Côte d’Ivoire and Ghana clearly hold dominant positions and supply about 60% of global production (40% and 21% respectively), followed by Indonesia (13%), Nigeria (6%) and Cameroon.

Production type: Almost 90% of cocoa production comes from smallholder farms of under 5 hectares and about 20 million people depend on cocoa for their livelihood. However, farm sizes vary by region: in Africa almost all production comes from smallholdings (and cooperatives), while in Indonesia and Brazil large estates and smallholders coexist.

Market structure: About 56% of world production is exported. In Western Africa, the major production region, cocoa exports used to be controlled by state monopolies, but after the structural adjustment policies of the 1990s, global cocoa supply chains are now dominated by a limited number of multinational corporations. Ghana is a notable exception; the Ghana Cocoa Board (Cocobod) sets prices and regulates the market. Further downstream in the supply-chain, trading and processing (i.e., grinding & roasting) is dominated by four multinational firms who are estimated to control over 40% of the market.2 Just like the cocoa processing industry, the conventional chocolate manufacturing industry is controlled by a small number of multinational firms.3 All of these companies manufacture products for the retail market and are vertically integrated from trading and processing through manufacturing and marketing. Combined with the four major processors listed above, these ten companies control over 70% of the world’s processing capabilities.

Outlook: Consumption of chocolate products in traditional markets of Europe and North America and the emergence of new markets in Eastern Europe and Asia are expected to rise. If the political crisis in Côte d’Ivoire results in shortage of supply, prices will increase. Continued supply of cocoa in the medium and long-terms is a major issue facing the cocoa industry.

1 Rabobank (2005) The Oilseed Industry – surviving in a Changing Competitive Environment http://www.rabobank.com/Images/Rabobank_The_Oliseed_Industry_2005_Shwedel_January2005_tcm25-12245.pdf 2 Archer Daniels Midland (ADM), Cargill Inc, Barry Callebaut (grinders) and Nestle (chocolate manufacturing).3 Six manufacturers account for 50% of world chocolate sales: Nestlé, Mars, Philip Morris/Kraft, Cadbury, Ferrero, and Hershey.

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http://www.rabobank.com/Images/Rabobank_The_Oliseed_Industry_2005_Shwedel_January2005_tcm25-12245.pdf


Annex 1

Status of industry discussions on biodiversity. Currently social issues (e.g., child labor) are highest on the industry’s sustainability agenda and biodiversity aspects are not fully addressed by major industry players. However, a number of industry sustainability initiatives are currently underway and the continuing concern about sustainability of cocoa supply provides ample opportunity for initiatives related to biodiversity conservation.

Soybean

Uses. Soybean is grown primarily to provide cheap edible oil and high-protein animal feed. Soybean oil is now the most consumed oil in the world, primarily used for human consumption in cooking oils, margarines or shortening in the baking industry. Soybean meal was first simply a by-product from the crushing of soybeans for oil but now represents about 70% of total animal meal production.

Production location. About 90 million hectares are planted with soybean (Glycine max) mainly in countries with large scale cattle and feedstock production: USA (29.3 million hectares), Brazil (21.5 million hectares) and Argentina (14.3 million hectares).

Production type: Soybean is not a subsistence crop (no smallholdings with the exception of in China and India), but is usually grown over large areas up to several thousand hectares with extensive mechanization and low labor inputs.

Market structure: About 2/3 of the production is consumed directly in the production country. Europe is the main importer of soy meal (51% of total exports), while China is the largest importer of soy oil. Argentina and Brazil are the dominating export nations for both oil and meal from soy, and account together for more than 75% of total exports. Soy oil prices are interrelated with soy meal prices and other major oil prices (palm oil, rapeseed/canola, sunflower).

Outlook. While soybean faces intensive competition from palm oil producers in Malaysia and Indonesia - who can produce oil at about half the cost of soybean and other seed oil producers - soybean production is expected to continue to grow.

Status of industry discussions on biodiversity. Soybean plantations have developed rapidly, in particular in Brazil, where the dry savannah ecosystems of western central Brazil in the states of Piaui and Mato Grosso, home to about ten thousand plant species and animals in danger of extinction, are threatened by further developments. Within the Roundtable on Sustainable Soy, the industry has acknowledged the broader environmental issues and committed to continue with the process for addressing problems and develop and reinforce the chain for responsible soy production. However, further work is needed to specifically address biodiversity.

Sugarcane

Uses. Sugarcane (and sugar in general) is used in many food products. Sugar is considered a staple food by many consumers and some multinational food and soft drink producers strongly depend on sugar as a core ingredient of their products. Mars Inc., for example, purchases about 10% of the world sugar production every year. In Brazil, the world’s largest producer of sugarcane, a large share of the production is transformed into ethanol. If fuel prices remain high, this type of usage as biofuel is expected to grow significantly at the international level. Sugar

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processing wastes (bagasse) can be used as a biomass fuel; sugar waste can also be turned into paper, fertilizer, and other valuable products.

Production location. Brazil and India have by far the most land devoted to sugarcane (Saccharum officinarum) with 5.6 million (21.1% of world production) and 4.1 million hectares (19.5% of world production) respectively4(see Annex 2 below for production areas).

Production type. Sugarcane, a member of the grass family, is used for sugar production in the tropics and sub-tropics and accounts for 76% of total global sugar production. In Brazil most sugarcane is grown in medium to large-sized farms, but in most other developing countries, a large part of sugarcane production comes from small farms (2-3 hectares on average).

Market structure. The proportion of total global sugar production that enters international trade is relatively small – around 70% of total sugar output is consumed in the country where it is produced. Brazil plays a dominant role and is by far the most important exporter, accounting for more than 45% of exports (15 million metric tons).

Outlook. Driven by consumer demand that has increased by more than 50% over the last twenty years, world sugar production has seen a dramatic increase since the middle of the century, growing from a 55.4 million tons in 1960 to more than 145 million tons in 2003/04. Sugar prices are expected to be high and a sustained increase of demand is likely to further increase production. An expected increase in demand for biofuel from ethanol will accelerate this trend. The prospect of a contraction of sugar beet production due to changes in the EU sugar regime are likely to further strengthen the importance of sugarcane production, in particular from Brazil.

Status of industry discussions on biodiversity. The recently launched multi-stakeholder “Better Sugarcane Initiative (BSI)” has the goal to ensure that sugar cane production and primary processing are undertaken in a socially and economically sustainable manner. Biodiversity concerns are raised particularly over the clearance of natural habitat for expansion of croplands. The BSI, which is in its early stages, has identified this and other environmental issues related to sugarcane production, and will next define target performance levels.

4 World Sugar Yearbook 2005

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Annex 2

ANNEX 2: MAPS AND TABLES RELATED TO PRODUCTION AND EXPORT OF BACP’S TARGET COMMODITIES

Palm Oil Production and Exports

Palm Oil Production Palm Kernel Oil Production

CountryQuantity

000 t% Country

Quantity000 t

%

Malaysia 13 974 45.6 Malaysia 1 594 46.1

Indonesia 12 080 39.4 Indonesia 1 219 35.3

Nigeria 790 2.6 Nigeria 204 5.9

Thailand 668 2.2 Thailand 61 1.8

Colombia 632 2.1 Colombia 55 1.6

PNG 345 1.1 PNG 33 1.0

Cote d'Ivoire 270 0.9 Cote d'Ivoire 28 0.8

Ecuador 260 0.8 Ecuador 20 0.6

Rest of the world 1 610 5.3 Rest of the world 242 7.0

Total 30 629 Total 3 456

Palm Oil Exports Palm Kernel Oil Exports

Country Quantity000 t % Country Quantity

000 t %

Malaysia 12 186 52.2 Indonesia 840 46.0

Indonesia 8 580 36.7 Malaysia 793 43.4

PNG 336 1.4 Thailand 73 4.0

Colombia 186 0.8 PNG 32 1.8

Thailand 166 0.7 Colombia 24 1.3

Costa Rica 136 0.6 Other countries 66 3.6

Honduras 106 0.5 Total 1 828

Cote d'Ivoire 103 0.4

Rest of the world 1 557 6.7

Total 23 356

Source: Oil World 2005

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Annex 2

Cocoa Production and Grindings

Production Grindings


000 t %

Côte d'Ivoire 1 386 39.5 EU 1 241 38.4

Ghana 735 21.0 USA 401 12.4

Indonesia 450 12.8 Côte d'Ivoire 321 9.9

Nigeria 185 5.6 Brazil 207 6.4

Cameroon 167 4.8 Malaysia 200 6.2

Brazil 163 4.7 Indonesia 122 3.8

Ecuador 105 3.0 Rest of the world 736 22.8

Rest of the world 314 8.7 Total 3 228

Total 3 505

Source: ED&F Man Cocoa Ltd

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Annex 2

Soybean Production and Export

Oil Production Oil Exports


000 t %

USA 7 747 25.1 Argentina 4 367 48.4Brazil 5 629 18.2 Brazil 2 718 30.1Argentina 4 729 15.3 EU (25) 538 6.0China 4 690 15.2 USA 434 4.8

EU (25) 2 551 8.3 Other countries 958 10.6

India 1 086 3.5 Total 9 015Other countries 4 426 14.3

Total 30 858

Meal Production Meal Exports


000 t %

USA 32 953 24.9 Argentina 19 156 42.7Brazil 22 520 17.0 Brazil 14 761 32.9China 21 933 16.6 USA 3 957 8.8Argentina 19 758 14.9 India 3 406 7.6EU (25) 10 933 8.3 Paraguay 892 2.0Other countries 24 364 18.4 China 632 1.4

Total 132 461 Other countries 2 088 4.7

Total 44 892

Source Oil World 2005

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Annex 2

Sugar Production and Exports

Production Exports


000 t %

Brazil 23 652 21.1 Brazil 15 780 45.2

India 21 897 19.5 Thailand 5 171 14.8

China 10 217 9.1 Australia 3 639 10.4

Thailand 7 670 5.8 Cuba 1 910 4.8

Australia 5 609 5.0 Guatemala 1 255 3.6

Mexico 5 345 4.8 Colombia 1 171 3.4

Pakistan 3 980 3.6 South Africa 1 020 2.4

USA 3 595 3.2 Rest of the world 4 966 14.2

Colombia 2 646 2.4 Total 34 912

South Africa 2 412 2.2

Cuba 2 251 2.0

Philippines 2 237 2.0Rest of the world 20 606 18.4

Total 112 117

Source: World Sugar Yearbook 2005.

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Annex 2

Palm Oil: Harvested Area and Production

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Annex 2

Cocoa: Harvested Area and Production

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Annex 2

Soybean: Harvested Area and Production

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Annex 2

Sugarcane: Harvested Area and Production

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Annex 3

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Annex 3

ANNEX 3: SUMMARY OF FINDINGS OF PDF-B, INCLUDING SELECTION PROCESS FOR TARGET COMMODITIES

1. Findings from the PDF-BSignificant progress has been made to further define and fine-tune the BACP approach during the PDF-B phase. Through a review and screening process of a long-list of 15 commodities, the commodity focus for the BACP has been defined and four commodities have been selected as target commodities (see below for more detail).

Furthermore, extensive consultation with stakeholders was conducted, which confirmed the relevance of the BACP approach for the selected commodities and resulted in the following adjustments to the initial BACP concept:

a. The importance of international, multi-stakeholder roundtables as alliance partners for the BACP was further strengthened. It became clear that roundtables that represent different constituencies of stakeholders in a balanced way can play a crucial role in improving environmental performance. They are uniquely poised to build consensus on environmental principles & criteria among a broad range stakeholders in the commodity chains, and to facilitate pilot testing by industry leaders.

b. Among the selected target commodities, palm oil clearly emerged as the most mature commodity and the most promising for the BACP market transformation strategy. A large number of relevant eligible projects have already been identified for this commodity. In cocoa, market transformation might proceed at a slower pace as a round table process is planned but has not yet been initiated. For sugarcane and soybean roundtable processes are initiated and are expected to be operational by the time the BACP focuses on these commodities.

c. Moreover, it appeared that the selected commodity chains will benefit more from Technical Assistance (TA) rather than from financial instruments. It was therefore decided to allocate the Program funds to TA, and to address any financial constraints and barriers through technical assistance directed to financial services providers.

d. Finally, the BACP concept note was based on the assumption that "off-the-shelf” BMPs are available and that a targeted removal of barriers would allow their broad adoption by industry. This assumption proved only partially true in the selected commodities as the link between BMPs and barriers for adoption is not always fully understood. While “win-win” BMPs exist and could be used, some of the targeted BMPs require further field-testing to document their economic and biodiversity benefits. The commodity

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Annex 3

roundtables are ideal partners to help bridge this gap, demonstrate biodiversity benefits, and build and disseminate the business case for BMPs.

2. Commodity Selection Process

In the course of the PDF-B, the BACP preparation team conducted market research to provide supporting data for the selection of the BACP priority commodities among a shortlist of 15 commodities. A simple high-medium-low rating system was designed to facilitate the selection process. In this rating system, market data were clustered around the following five categories:

a. Impact of prevalent production systems and practices on biodiversity, including the following subcriteria: habitat conversion, soil degradation, chemical usage, waste, water and other genetic species (e.g., GMOs).

b. Feasibility of alternative methods to these practices, including the existence of alternative methods; their feasibility and usage in industry; as well as their (positive) impacts on biodiversity.

c. Existence of GEF and non GEF projects and initiatives that are aligned with the BACP objectives and could support the BACP.

d. Stakeholder traction. The potential of the commodity chain stakeholders, particularly the private sector, to engage in collaborative actions for the success of the BACP; and

e. Regional concentration, which might have an influence on the ability of the BACP program to be implemented cost-effectively.

A rating of the respective merits of each of the commodities according to these five criteria and a set of related sub-criteria was conducted during a telephone meeting involving experts from the BACP preparation team. Following a discussion with IFC of the rating system and supporting data, two additional criteria were considered:

a. Leverage of IFC mainstream resources, IFC interest and core-business activity, in particular of the IFC Agribusiness & Forestry departments. This criteria assesses to what extent the BACP could leverage and build upon IFC’s mainstream departments’ core business activities in the selected commodities and was rated in a three-tier rating (good/medium/low).

b. Expert opinion through limited consultation with selected experts and stakeholders. Additional input from a small number of selected experts and (Washington DC-based) stakeholders on the rating and commodity selection was sought at the request of the IFC. The purpose of the consultation was to seek further input and feedback in order to evaluate whether experts would confirm or challenge the initial rating proposed by the consultants.

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Annex 3

An overview of the results of the final rating proposed by the BACP team and the additional criteria developed in cooperation with the IFC are shown in the table below.

Final rating (selected commodities in bold/black)

Biodiversity impacts of current methods

Potential of alternative methods

Other initiatives coherent with the BACP

Stakeholder traction

Regional concentration IFC leverage

Banana High High Several Fair Yes LAC Low

Beef High Medium Few Fair Yes LAC Good

Cocoa High Medium Several Good Yes W. Africa Medium

Coffee Medium Medium Many Good No Medium

Cotton Medium Medium Many Fair No Medium

Dairy Low Low Few Poor No Low

Palm oil High High Several Good Yes Asia Good

Rice Low Medium Few Poor No Low

Rubber Low High Few Fair Yes Asia Low

Salmon High High Few Fair Yes No Interest

Shrimp High High Few Fair No No Interest

Soybean High High Few Fair Yes LAC Good

Sugarcane Medium High Few Fair No Good

Tea Medium Medium Few Fair Yes Asia Low

Timber High High Many Fair No Medium

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Annex 3

Discussion and rationale for selection of BACP commodities

The selection process resulted in the following commodity focus for the BACP:

Palm oil (fast track): identified by environmental NGOs (e.g., WWF) as one of the major threats to forests, the oil palm sector has identified alternative methods and has already started implementing them through several projects and initiatives. The private sector already initiated a multi-stakeholder initiative, the Roundtable on Sustainable Palm Oil (RSPO) that represents a strong partner for the BACP. Regional concentration is high, as 80% of the production comes from Malaysia and Indonesia. IFC Agribusiness already has a strong involvement in the industry (producers, traders, refiners) and has access to the industry at all levels of the value-chain, including through the IFC/WWF Better Management Practices (BMP) initiative. External experts confirmed that good stakeholder traction and high potential for partnerships exist within this commodity.

Cocoa (fast track): actual production methods have a strong impact on habitat conversion. Alternative methods exist which could significantly reduce theses impacts, and several initiatives have been launched in recent years, mostly with the active participation of the private sector. Côte d’Ivoire and Ghana concentrate more than 60% of the production. While IFC Agribusiness’ contacts within this commodity are less developed, some access to the industry exists through intermediaries (i.e., trading companies). External experts also see a good potential, and a focus on West-Africa might also provide a geographical match (the current GEF portfolio is weaker in this region).

Soybean: The expansion of soybean production has a very strong impact, in particular through habitat conversion of Brazilian Cerrado and Amazonian forest. Production is concentrated in Brazil and Argentina and powerful industry stakeholders in that region are aware of the environmental and biodiversity problems. IFC is already involved at all levels of the supply chain, and existing relationships within the IFC/WWF BMP initiative could be leveraged. Experts consulted confirmed that soybean is a good candidate for the BACP.

Sugarcane: Habitat conversion, water use, soil degradation and pollution by chemicals and waste are the major threats to global biodiversity. Alternative methods exist and some are already in use. The private sector has a strong influence and has begun to engage in sustainability initiatives (e.g., Better Sugarcane Initiative). The likely development of bio-fuel will have an important impact on prices and demand for ethanol from sugarcane. The price of oil makes it possible to cultivate sugarcane profitably in areas that even a few years ago would have been too marginal for production. These are precisely the areas where there is a lot of biodiversity. BACP is in a position to anticipate the problem. This trend provides a strong rationale for the selection of sugarcane, despite the complexity of the supply chain (trade policy issues and government intervention). In addition, The IFC has a strong interest and large existing client portfolio in the industry and potential synergies exist with the IFC/WWF BMP initiative.

For the selected commodities, the table on the next page provides an overview of the key issues for each selection criterion.

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Annex 3

Com-modity / Criteria

1 Global Biodiversity

2 Business Case 3 Social Impacts 4 Implementation Barriers

5 Complementary GEF and non-GEF initiatives and organisations

6. Private sector traction & degree of industry organisation

7.Regional concentration

Cocoa Habitat conversion is the major threat; cocoa is often the first step in a forest conversion process.

There is a trend to vertical integration. A few large companies dominate the chain. Niche markets remain small. Fair trade cocoa is produced in many countries.

Changes will affect many farmers who do not have the financial resources and education level to make the transition to more sustainable systems.

Lack of information and capacity are the main bottlenecks. Existing organisation and extension structures were dismantled following liberalisation.

GEF activities in cocoa growing areas, in Brazil, Côte d’Ivoire or Ghana. Many initiatives are related to fair trade and organic cocoa production and many of these initiatives could have links with a BACP project.

Most production by smallholders. Major private players are concerned about supply problems in the future and conscious of a need for more sustainable production. Stakeholders are organised in several platforms.

West Africa

Palm Oil

The major impact is through habitat conversion, especially in Indonesia with strong effects on biodiversity. Other impacts are related to waste of oil mills and to crop and land management.

Demand for palm oil is increasing. There is a need to increase production. Rehabilitation of degraded land and regeneration of old plantations is feasible. Stakeholders are organised in various platforms.

In South East Asia, oil palm plantations are organised in smallholdings. There are conflicts between the indigenous populations and plantation owners on land rights. Sustainable oil palm production can provide an economic impulse to regional economies.

Important issues are the weak juridical and legal systems to enforce regulations related to deforestation and land clearing. Conflicts with indigenous population.

No specific GEF projects were found. Several initiatives are ongoing to arrive at solutions to environmental and biodiversity problems related to palm oil production and processing.

The private sector is strongly involved in the ongoing initiatives. Awareness of the problems and need for positive action is high.

The oil palm industry is concentrated in Indonesia and Malaysia. Some smallholder industries in Africa exist.

Soybean Major impact is via habitat conversion of Brazilian Cerrado and Amazonian forest to soybean cultivation. Pesticide use is high.

Strong competition with palm oil. The market is distorted by subsidy programs.

Major disputes between “landless” and large landowners in Brazil. Labor absorption capacity is low in the highly mechanised soybean agrofood complex. Jobs for the local community are temporary and limited to the land clearing and preparation phase.

Weak juridical and legal systems to enforce regulations on land conversion. Low price for virgin land and low-cost conversion are additional issues. Stakeholder platform exists but GM issue slows progress.

GEF has some soybean related projects in Brazil.Several projects address the issue of pesticides use in soybean production.

The powerful stakeholders are aware of the problems. However the market situation (competition, subsidies) and the GM issue have hampered progress.

Global players are the USA, Brazil and Argentina.

Sugar-cane

Habitat conversion, water use, soil degradation, pollution from chemicals & waste.Existing alternative methods, some already in use.

Market is distorted by subsidies to sugare from beet.Major driver for BMPs is cost-reduction.

Alternative methods not always adapted to smallholders’ situation.

Lack of financial incentives, fierce competition and low prices.Lack of knowledge and understanding of alternative methods.

Some complementary GEF projects that address similar issues. but no specifically related to BACP’s objectives.Some certification initiatives.

Strong influence of the private sector.Industry initiative exists.

No regional concentration

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Annex 4

ANNEX 4: ROUNDTABLE ON SUSTAINABLE PALM OIL:PRINCIPLES AND CRITERIA

The Roundtable on Sustainable Palm Oil (RSPO) is a multi-stakeholder organization created in 2001 to promote the growth and use of sustainable palm oil through co-operation within the supply chain and an open dialogue with stakeholders. RSPO brings together stakeholders from the entire palm oil value chain, including the major palm oil grower organizations (MPOA, FELDA, FEDEPALMA, GAPKI);5 more than 20 major palm oil production companies representing about one third of global palm oil production; more than 20 palm oil processors and traders, about 10 major (European) consumer goods manufacturers, five retailers, several banks and investors, environmental and social non-governmental organizations (NGOs) and other affiliate members (e.g., refiner associations, estate owner organizations, research organizations, input providers, and individuals).

One of the major achievements of the RSPO process is the recent adoption of the RSPO Principles & Criteria (RSPO P&Cs) at the 3rd RSPO Round Table in Singapore in November 2005.6 The Principles & Criteria lay the foundation for a generally accepted standard for sustainable production of palm oil and 14 production companies and organizations among the RSPO members have publicly committed to participate in the 2-year trial period to test implementation of the P&Cs.

Environmental, and more specifically, biodiversity impacts of palm oil production - in particular habitat conversion, which represents the single most important biodiversity issue for the palm oil industry - are clearly addressed in the P&Cs, in particular through:

- Principle 5 (Environmental responsibility and conservation of natural resources and biodiversity) in particular criterion 5.2 on threatened and endangered species and high conservation habitat (see box below) ; and

- Principle 7 (Responsible development of new plantings) their related sub criteria, in particular criterion 7.3 (see box below).

5 Malaysian Palm Oil Association (MPOA), Federal Land Development Agency of Malaysia (FELDA, mostly smallholders), National Federation of Oil Palm Growers of Colombia (FEDEPALMA), Indonesian Palm Oil Producers Association (GAPKI). 6 http://www.sustainable-palmoil.org/ PDF/CWG/RSPO%20Principles%20&%20Criteria%20for%20Sustainable%20Palm%20Oil%20(final%20public%20realease).pdf

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http://www.sustainable-palmoil.org/%20PDF/CWG/RSPO%20Principles%20&%20Criteria%20for%20Sustainable%20Palm%20Oil%20(final%20public%20realease).pdf

http://www.sustainable-palmoil.org/%20PDF/CWG/RSPO%20Principles%20&%20Criteria%20for%20Sustainable%20Palm%20Oil%20(final%20public%20realease).pdf


Annex 4

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Excerpt from RSPO Principles & Criteria:

Principle 5: Environmental responsibility and conservation of natural resources and biodiversity

Criterion 5.1: Aspects of plantation and mill management that have environmental impacts are identified, and plans to mitigate the negative impacts and promote the positive ones are made, implemented and monitored, to demonstrate continuous improvement.

Criterion 5.2: The status of rare, threatened or endangered species and high conservation value habitats, if any, that exist in the plantation or that could be affected by plantation or mill management, shall be identified and their conservation taken into account in management plans and operations.

Criterion 5.3 Waste is reduced, recycled, re-used and disposed of in an environmentally and socially responsible manner.

Criterion 5.4 Efficiency of energy use and use of renewable energy is maximised.

Criterion 5.5 Use of fire for waste disposal and for preparing land for replanting is avoided except in specific situations, as identified in the ASEAN guidelines or other regional best practice.

Criterion 5.6 Plans to reduce pollution and emissions, including greenhouse gases, are developed, implemented and monitored.

Principle 7: Responsible development of new plantings

Criterion 7.1: A comprehensive and participatory independent social and environmental impact assessment is undertaken prior to establishing new plantings or operations, or expanding existing ones, and the results incorporated into planning, management and operations.

Criterion 7.2: Soil surveys and topographic information are used for site planning in the establishment of new plantings, and the results are incorporated into plans and operations.

Criterion 7.3: New plantings since November 2005 (which is the expected date of adoption of these criteria by the RSPO membership), have not replaced primary forest or any area containing one or more High Conservation Values.

Criterion 7.4: Extensive planting on steep terrain, and/or on marginal and fragile soils, is avoided.

Criterion 7.5: No new plantings are established on local peoples’ land without their free, prior and informed consent, dealt with through a documented system that enables indigenous peoples, local communities and other stakeholders to express their views through their own representative institutions.

Criterion 7.6: Local people are compensated for any agreed land acquisitions and relinquishment of rights, subject to their free, prior and informed consent and negotiated agreements.

Criterion 7.7: Use of fire in the preparation of new plantings is avoided other than in specific situations, as identified in the ASEAN guidelines or other regional best practice.

In October 2005 the IFC joined the RSPO as a full member. Preliminary discussions and negotiations with the RSPO Executive Board have identified several short- and medium-term priority areas for cooperation between the BACP and RSPO.7

a. Set up a biodiversity technical working group to address specific biodiversity issues that might arise during the pilot testing of the P&C. The working group would involve

7 See: Minutes of Executive Board meeting EB-04-05 on 24 November 2005, section 1.2. http://www.sustainable-palmoil.org/PDF/EB%20meetings/EB%2004-05.pdf

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Annex 4

RSPO member companies that volunteered to participate in the 2-year pilot testing of the P&C (short-term priority).

b. Training programs on biodiversity & High Conservation Values (HCV), in particular the national adaptations of HCV guidance involving RSPO member companies. Moreover, national grower and producer organizations (IPOC, GAPKI, MPOA) would assist in the coordination of training on biodiversity for their respective member companies (short-term priority).

c. Mapping and monitoring of biodiversity areas in palm oil production landscapes, involving organizations such as UNEP’s Great Apes Survival Project (GRASP)8 and SarVision9 that already have worked in this area (short-term priority).

d. Verification. Assist RSPO in the development of the biodiversity components of verification (or possibly certification) procedures and processes for the palm oil industry (medium-term priority).

e. Facilitate dialogue with governments through World Bank Group. RSPO is currently in the process of developing a strategy to engage with governments. However, in the medium term, the BACP could assist in coordination with national governments in palm oil production countries to ensure that any remaining policy issues that may result in counterproductive incentives or effects are addressed appropriately. (medium term priority)

Furthermore, the BACP will cooperate closely with the RSPO secretariat and RSPO board during implementation of the BACP to ensure that the BACP strategy leverages industry commitment and that the BACP strategy for palm oil is adapted to market needs.

.

8 http://www.unep.org/grasp/ 9 SarVision (www.sarvision.nl) is a Dutch spin off company of Wageningen University, with specialized expertise in research and development of systematic operational forest monitoring systems using satellite technology at a range of scales. Its mission is to provide managers, policy makers and civil society accurate up-to-date geographic information on forest status on a regular basis (daily to monthly updates). SarVision’s systems provide map information on land use/cover, land use/cover change, logging, fires, hydrology (drought, flooding), or biomass on a regular basis (updates daily to monthly).

SarVision aims at the establishment of regional service divisions in tropical forest regions throughout the world, to develop into independent local operational service entities, operated by local staff. SarVision Indonesia provides land survey and geographic information systems services. It operates the dedicated systematic forest monitoring systems at its Balikpapan monitoring facility, supported by SarVision Wageningen in collaboration with the major space agencies. Is this amount of detail necessary?

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Annex 5

ANNEX 5: DEFINITION OF HIGH CONSERVATION VALUES FOR FORESTS

High Conservation Values (HCV) in a forest or a agricultural landscape are defined on the basis of a credible and agreed upon standard, and their presence or absence is determined on the basis of whether a set of pre-defined criteria are met. One of the most widely used sources for defining HCVs and their associated criteria is the “HCVF Tool Kit” developed by ProForest, a standard compatible with the Principles & Criteria adopted by RSPO.10

The HCV criteria proposed by ProForest include criteria directly related to globally significant biodiversity as follows:

HCV1. Forest areas containing globally, regionally or nationally significant concentrations of biodiversity values (e.g., endemism, endangered species, refugia). For example, the presence of several globally threatened bird species in a Kenyan mountain forest.

HCV2. Forest areas containing globally, regionally, or nationally significant large landscape level forests, contained within, or containing the management unit, where viable populations of most, if not all, naturally occurring species exist in natural patterns of distribution and abundance. For example, a large tract of Mesoamerican lowland rainforest with healthy populations of jaguars, tapirs, harpy eagles and caiman as well as most smaller species.

HCV3. Forest areas that are in, or contain, rare, threatened or endangered ecosystems. For example, patches of a regionally rare type of freshwater swamp forest in an Australian coastal district.

HCV4. Forest areas that provide basic services to nature in critical situations (such as watershed protection or erosion control). For example, forest on steep slopes with avalanche risk, above a town in the European Alps.

HCV5. Forest areas fundamental to meeting basic needs of local communities (such as subsistence, health). For example, key hunting or foraging areas for communities living at a subsistence level in a Cambodian lowland forest mosaic.

HCV6. Forest areas critical to local communities’ traditional cultural identity (areas of cultural, ecological, economic or religious significance identified in cooperation with such local communities). For example, sacred burial grounds within a forest management area in Canada.11

10 Dr. Gary D.Paoli, Challenges and opportunities for managing High Conservation Value Forest in oil palm plantation forestry: A practitioner’s point of view, paper presented at 3rd RSPO conference, November 2005, http://www.sustainable-palmoil.org/PDF/RT3/Proceedings/Session%205%20Gary%20Paoli%20paper.pdf 11 Source: HCVF Toolkit, Proforest: S. Jennings, R. Nussbaum, N. Judd and T. Evans, December 2003.

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Annex 6

ANNEX 6: PORTFOLIO OF SAMPLE BACP PROJECTS

This Annex presents seven sample projects which BACP has developed with partners in the course of the PDF-B. Additional projects are in the process of being prepared, and may be added to the proposal before the May 2006 submission.

List of sample projects presented in this Annex.Project 1: Regional High Conservation Value Forest (HCVF) Assessments to Identify Areas for Palm Oil Development and Conserve HCVF Landscapes in Borneo and Sumatra.

Project 2: Protecting Primary Forests in East Kalimantan by Developing High-Performance Palm Oil Plantations on Land Previously Degraded by Intensive Logging.

Project 3: Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain.

Project 4: Help the Better Sugarcane Initiative to Document Best Practices That Protect on Farm and Landscape Level Biodiversity of Global Significance.

Project 5: Participation in RSPO Technical Working Groups on Biodiversity.

Project 6: Working with Smallholders to Reduce Biodiversity Impacts from Palm Oil production in Indonesia.

Project 7: Design and Test Investment Screens to Reduce Biodiversity Impacts and Brand Risks of Bank Investments.

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Project number: 1Project Title: Regional High Conservation Value Forest (HCVF) Assessments to

Identify Areas for Palm Oil Development and Conserve HCVF Landscapes in Borneo and Sumatra

Target Commodity: Palm oil Target Country: Indonesia (East, Central & West Kalimantan; Aceh & North

SumatraLead partner(s): GRASP/Indonesian Resource Institute/ The Nature ConservancyProgram Activity Component: Component 1 (Enabling environment) .Estimated grant from BACP: $400 ,000 out of total budget of $1,700,000Estimated leverage: >1:3

Biodiversity that the project will seek to protect/preserve.Borneo and Sumatra represent distinctive ecoregions within the biodiverse Southeast Asian rain forests, and they host a wide range of ecosystems and habitats. The lowland forests are among the richest in plant species diversity in the world. Rich species diversity is found among different habitats as well, such as the lowland forests on different soils, swamp forests and peat forests. The project addresses the most endangered hierarchical levels of biodiversity on these islands: the landscape-level forests that contain different ecosystems, rich mosaics of habitats and species, and genetic diversity between populations of key species. These large areas are capable of maintaining viable populations of endangered species that live at low density, such as orangutans, tigers and elephants. Rich habitat mosaics within contiguous areas of forest allow seasonal migrations by diverse birds and mammals, maintaining their populations and their essential seed-dispersing and pollinating functions. These large landscapes also typically encompass critical watersheds and many environmental services critical for sustaining development. Baseline scenario.Lowland Southeast Asian forests are the most biodiverse in the world and are critical habitats for flagship species like orangutans, tigers and elephants. These areas are highly sought after for palm-oil plantation development. Currently, land development licenses are issued without land-use planning. Thus the integrity of the large, habitat-rich, landscape-level forests which are critical for conservation of biodiversity is undermined as forests are reduced and fragmented. Unless methods of spatial planning for palm oil development are improved, projected expansion of oil palm plantations over the coming years threatens to irrevocably compromise conservation of biodiversity in tropical forests, especially in the remaining lowlands of Borneo and Sumatra.

Barrier. While the criteria of the Roundtable on Sustainable Palm Oil (RSPO) explicitly require the use of HCVF techniques at plantation level (criterion 7.3), lack of knowledge on HCVF areas in the region prevents companies from integrating biodiversity considerations in their land development plans.

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Furthermore, HCVF and land use planning at the regional level is a public good without a mechanism for all potential oil palm plantation developers and for other beneficiaries to contribute to the costs. Finally, there are financing constraints, as setting up industry-wide HCVF database is too expensive for any one or a few companies to fund.

Project Description.The objectives of the project are to (a) identify the remaining landscape-level forests critical for conserving ecosystem, habitat, species and genetic diversity in Sumatra and Borneo (b) facilitate multi-stakeholder support for allocating these HCVF)landscapes for uses that do not compromise their conservation function, and other lands for oil palm plantation development (c) to create partnerships among conservation, industry and government agencies to monitor and manage long-term land use solutions for each of these landscapes (d) engage the palm oil industry and local governments in a priori designation of HCVF to comply with RSPO P&C, and establish 3 rd party monitoring so that the palm oil industry can receive tangible marketing benefits for their responsible stewardship of these HCVF regions.

The project will engage a broad range of stakeholders including (a) international conservation NGOs active in Borneo and/or Sumatra with expertise in HCVF assessment (b) Indonesia-based NGOs, (c) scientific partners specialized in Remote Sensing/GIS landscape level monitoring database & biodiversity assessments (d) HCVF assessment specialists (Smartwood and/or Proforest), the palm oil industry and leading production companies (through RSPO secretariat and GAPKI, the association of Indonesian palm oil producers), as well as the Indonesian government.

Alternative Scenario.The project will demonstrate how land-use planning BMP techniques can conserve tropical forests of high biodiversity conservation value and allocate non-HCVF land to oil palm plantation and other development uses. Especially important is the identification and management of large HCVF areas critical for ecosystem, habitat, species and genetic biodiversity conservation. The project would enable one-time regional assessments, avoiding the expensive and impossible task of training company personnel and duplicating cost and effort. Estimated overall budget and sources co-funding.The total cost of the project is roughly estimated to be US$ 1,700,000 out of which US$ 400,000 are expected to be co-financed by various other sponsors (US$ 500,000 in-kind and US$ 800,000 in grants). BACP would provide the remaining US$ 400,000.

Replicability and sustainability.Through industry organizations (e.g., RSPO, GAPKI) the results of the project will be made available to all companies that wish to operate in the region, allowing cost-effective, transparent plantation and smallholder development in the selected regions, and thus removing a barrier to the implementation of landscape-level biodiversity conservation.

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The model is also easily transferable to other tropical regions, and of course to other provinces of Indonesia, enabling efficient replication of benefits to other regions of high biodiversity forests. Finally, the model is relevant to other agricultural commodities.

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Project number: 2Project Title: Protecting Primary Forests in East Kalimantan by Developing

High-Performance Palm Oil Plantations on Land Previously Degraded by Intensive Logging.

Target Commodity: Palm oil Target Country: Indonesia Lead partner(s): PT Socfindo, Medan, Indonesia (RSPO member)Program Activity Component: Component 2: Support better production via site-

specific projects.Estimated grant from BACP: Socfindo needs to undertake a land survey before being in a position to estimate costs.Estimated leverage: at least 1:2

Biodiversity that the project will seek to protect/preserve.East Kalimantan is still covered by relatively intact forests rich in biodiversity, which are part of the Sundaland biodiversity hotspot. In some areas, palm oil companies have received licenses for land development on concessions that include areas of remaining forest. Threats on remaining biodiversity on these lands mostly stem from the possibility of irresponsible development of these concessions, including uncontrolled logging, converting High Conservation Value Forest (HCVF) to agricultural purposes and encroachment of other activities in remaining primary forest area.

This project specifically addresses on-farm biodiversity on an existing concession, belonging to PT Socfindo Medan. It will address better management practices including landscape management and in particular, protection of remaining areas of primary forest/selected high-conservation value forest at the plantation/concession level. The project focuses on mitigating negative impacts of intensive logging, the role of palm oil plantations as buffer zones and barriers against further infiltration of illegal activities and uncontrolled squatting in primary forest areas.

This project demonstrates landscape management practices on a concession level, and thus complements project Project 1 (Regional High Conservation Value Forest (HCVF) Assessments to Identify Areas for Palm Oil Development and Conserve HCVF Landscapes in Borneo and Sumatra), which focuses on the broader landscape management issues at the regional level.

Baseline scenario.While the voluntary standard RSPO principle 7 (Responsible development of new plantings), explicitly identifies these better management techniques at a plantation level (see Annex 4), these practices are not yet widely adopted by the industry. The feasibility of these principles and criteria has yet to be demonstrated and documented.

Barrier. Barriers to large-scale adoption of concession-level landscape management practices include corporate lack of awareness of the issues, lack of know-how and practical

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experience in implementing the practices, and reluctance by the industry to implement practices which are not yet well understood.

Project Description.This demonstration project is proposed by PT Socfindo Medan, the Indonesian subsidiary of a Socfin SA, a large international commodities concern active in palm oil in Indonesia since 1911. The project goal is to develop a high-performing oil palm plantation on a concession previously degraded by intensive logging, to protect the remaining areas of primary forests and to reforest other areas with rubber and teak. It is currently envisaged that the concession(s) would cover an area of some 200,000 ha of which about 60,000 ha of degraded forestry land would be converted to oil palm development, and the balance would be conserved forest, or the subject of a reforestation project.

The project seeks to balance the development of a high-performing oil palm plantation with the improvement of conservation areas, with the explicit purpose of mitigating the negative impact on biodiversity of oil palm plantations. The project will combine forestry, plantations, biodiversity conservation, and social development.

Alternative Scenario.The project will involve (a) integrated mapping of the concession, (b) an evaluation of the High Conservation Value Forests (HCVF) on the concession, (c) zoning of the three parts of the project, (d) preparation of the Environmental Impact Assessment (EIA), (e) development of a forest preservation program , and (f) reforestation and oil palm development program.

The expected outcomes of the project are (a) to evaluate the feasibility of RSPO principle 7, and (b) to demonstrate the feasibility of further economic and social development in the region while protecting the biodiversity in primary forest and selected HCV forests.

Replicability and sustainability.This project, implemented by and RSPO member who is one of the palm industry’s leading companies in terms of sustainability practices, will demonstrate the applicability of RSPO criteria related to biodiversity. Results from this pilot testing project will also feed into the RSPO pilot testing process for Criteria 7. The project could become an important reference for other companies seeking to start activities in East Kalimantan or elsewhere in Indonesia and could therefore have a high leverage and replication effect. As it will provide a platform for sharing experience, it will also accelerate adoption of similar practices by other companies in the industry.

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Project number: 3Project Title: Implementing a Comprehensive System of Biodiversity-friendly

Cocoa Production through the Supply Chain.Target Commodity: CocoaTarget Country: Côte d’Ivoire Lead partner(s): Zamacom S.A (Côte d’Ivoire)Program Activity Component: Component 3: Support increased demand for

products with more positive biodiversity impactEstimated grant from BACP: $600,000 (total project size, $1,800,000)Estimated leverage: 1:2

Biodiversity that the project will seek to protect/preserve.Cocoa cultivation takes place in some of the most biodiverse tropical forests in the world. To date, about 8 million hectares of tropical forests have been lost to produce cocoa. Historically, most of this land would be in what today are called biodiversity hotspots. Average cocoa plantations last only 25 to 30 years so expansion into forest habitat is the norm. This project seeks to protect on-farm biodiversity and reduce environmental impacts from cocoa plantations on surrounding eco-systems through Better Management Practices (BMPs) such as improved shade coverage by planting companion/shade trees, protection of indigenous forest trees, protection of water courses, integrated pest management (IPM), proper application of phytosanitary products, etc. Not only do these practices measurably reduce the environmental impacts of cocoa production, they also extend the useful life of cocoa plantations thus reducing the tendency of cocoa production to expand into new areas. Baseline scenario.Over the last four years, Zamacom S.A.12(Côte d’Ivoire), a subsidiary of the global trading company Ecom Agroindustrial Corp. Ltd13 has already made significant investment to develop, on a pilot basis, a comprehensive model of biodiversity-friendly cocoa farming to improve the economic, environmental and social sustainability cocoa farmers.

Thanks to its strong presence in cocoa production regions in Côte d’Ivoire, and working in a supply-chain partnership with selected cooperatives, Zamacom assists eligible farmers to make sure the cocoa delivered matches the required criteria and is produced according to Better Management Practices. Using an Identity Preserved Scheme (IPS), the delivered cocoa is traceable to the farm, which ensures added-value that the final user (buyer or off taker) will be willing to pay for, and which allows the farmer to capture a price premium.12 Zamacom, S.A., Ecom’s wholly-owned origin operation in Ivory Coast started its cocoa sourcing and export operations in 1999 and is now one of the major cocoa shippers of the country. Zamacom has two main offices located in each of the Ivorian ports (Abidjan and San Pedro) where cocoa is re-conditioned (cleaned, dried and re-bagged) in their plants. On top of these 2 plants, Zamacom operates 6 buying centres located upcountry in the main cocoa producing regions. Zamacom today has about 90 employees and realises a turnover of over US$150 million per crop (about 90,000 mt of cocoa).13 Ecom Agroindustrial Corp. Ltd. is a fully integrated commodity origination and processing family of companies with a global presence in more than 20 countries. From its roots in Barcelona in the 1840's, ECOM has grown into a leading processor and merchandiser of coffee, cotton and cocoa in major producing and consuming countries, with ancillary agricultural operations in oilseeds and hogs. Total year-end 2004 sales for the company are around $US 1.8 billion.

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BMPs such as those promoted by the project can increase farm lifetime by 25-50%, and can increase production by around 15%. They reduce production costs by 10-20%, and improve overall quality, thereby further increasing profitability.

This supply-chain partnership builds capacity at cooperative (institutional) and farmer level and involves the following activities: (a) build capacity at cooperative level to ensure financial credibility, transparency of management, knowledge of the member base and baseline data collection (b) hands-on training of farmers through instruction on demonstration plots (c) establishment of project logistics and product traceability (e.g., local bagging stations at coop level, local cocoa quality certification, etc.). However, Zamacom currently restricts such supply-chain partnership activities to a few selected cooperatives and only works with 3 cooperatives representing about 2,500 farmers (owning 10,000 hectares and producing about 3,000 MT of cocoa per year).

Barrier. Today less than 15% of cocoa in Cote d’Ivoire comes from cooperatives and only a small percentage of these newly founded structures routinely provide assistance and quality services to their farmer base. Farmers therefore lack knowledge on BMPs and impacts on biodiversity. Furthermore, cooperatives lack knowledge and managerial capacity to put in place the appropriate procedures allowing traceability of cocoa.

Project Description.BACP grants would enable Zamacom to scale up and to extend its supply-chain partnership assistance to a more farmers, and across a wider geographic range, ensuring faster availability of greater volumes of sustainable cocoa, and increasing the mainstreaming of biodiversity friendly cocoa.

Alternative Scenario.Under the alternative scenario, the project targets to achieve a total production of about 17,000 MT of biodiversity friendly cocoa (representing about 1.5% of production in Côte d’Ivoire) within three years, extending the scope of the project to eight cooperatives and about 7,000 farmers, covering a total plantation area of 30,000 hectares.

Estimated overall budget and sources co-funding.Depending on scenarios, the total cost of the project over three years is estimated to be US$ 1,800,000 (US$ 600,000 per year). One third would be financed by BACP funds, one third by Zamacom, and the remainder by a third party. Another intermediate scenario with a total cost of US$ 900,000 assuming a 33% contribution by BACP and 67% by Zamacom and slightly less ambitious targets has also been developed (see Annex 9, Incremental cost analysis).

Replicability and sustainability.Once the project is underway, Zamacom’s parent company ECOM has the intention to replicate the model through its operations in other production regions (Cameroon, Indonesia, Mexico and Nigeria). The project thus has a high replication and market transformation potential both in the BACP target regions and beyond.

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The key to success of this approach lies in the effective involvement of all supply chain stakeholders from farmer to end-user: because the Better Practices used respond to market demand, participants at each level of the supply chain from their involvement. This ensures the model’s sustainability. In addition, the BMPs will increase farmers’ productivity and profitability, and will increase farm lifetime, all factors that contribute to sustained use of these practices in the long term.

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Project number: 4Project Title: Help the Better Sugarcane Initiative to Document Best Practices

That Protect on Farm and Landscape Level Biodiversity of Global Significance.

Target Commodity: SugarcaneTarget Country: Brazil, possibly othersLead partner(s): Better Sugarcane Initiative (BSI)Program Activity Component: Component 1 (Enabling environment)Estimated grant from BACP: approximately $5,000 per business caseEstimated leverage: 1:2

Biodiversity that the project will seek to protect/preserve.This project will document practices that can protect biodiversity of global significance affected by sugarcane production in Brazil (and, indirectly, in other countries as well).

Baseline scenario.At its meeting in January 2006, the Better Sugarcane Initiative members agreed that it is possible to reduce the key impacts of producing sugarcane production throughout the world. In fact, several different BMPs are used to do this in sugarcane-growing regions around the world. Unfortunately, little documentation is available about either the performance level that can be achieved, how much improvement is involved over a baseline, and the cost. Members proposed to begin a phased documentation effort, that would start by creating a clearinghouse to document and explain a wide range of better practices that different types of producers can use to achieve any given standard.

The next step would be to select practices for further study, in order to understand the business case for the different practices as well as to have a means to compare the performance and costs of a broad range of practices.

In the baseline scenario, specific issues related to impacts of production methods on biodiversity of global importance would not be taken into account.

Barrier. The BSI lacks the specific technical skills needed. Industry participants in the roundtable don’t yet know how to frame the specific biodiversity issues.

Project Description.BACP would cover the costs of an Expert who would perform a quick review of the BMP case studies being considered, assess the ones that have the most relevant to biodiversity of global significance, and then work with the people conducting the case study to guide them on its preparation, to make sure that biodiversity issues are addressed. The Expert will also ensure that biodiversity issues are fully reflected in the ensuing business case analyses.

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Alternative Scenario.In the alternative scenario, issues related to biodiversity of global significance will be incorporated into the BMP case studies and business case analyses produced by the BSI.

Estimated overall budget and sources co-funding.It is estimated that it would cost from $5,000-$25,000 to prepare business case analyses for specific BMPs that relate to biodiversity. BACP would fund one-third of the costs and BSI members would fund the remaining two-thirds. The non-biodiversity related BMPs will not be funded by BACP.

Replicability and sustainability.The business cases established via the project would feed into subsequent BSI activities related to defining target performance levels and related Principles and Criteria, and to field-testing in different production landscapes.

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Project number: 5Project Title: Participating in RSPO Technical Working Groups on BiodiversityTarget Commodity: Palm oilTarget Country: Indonesia Lead partner(s): Roundtable on Sustainable Palm Oil (RSPO)Program Activity Component: Component 1 (Enabling environment)Estimated grant from BACP: $20,000Estimated leverage: 1:2

Biodiversity that the project will seek to protect/preserve.This project generally addresses biodiversity of global significance located in Indonesia.

Baseline scenario.The Roundtable for Sustainable Palm Oil (RSPO) is planning Technical Working Groups (TWG) in the areas of Verification and on Two-year Principles and Criteria trial implementation. In the baseline scenario, these working groups would not pay specific attention to issues related to biodiversity of global significance.

Barrier. The RSPO members do not have the capacity to address biodiversity issues in detail.

Project Description.BACP would participate in two RSPO Technical Working Groups, the Verification Working Group and the Working Group on Two-year Principles and Criteria (P&C) trial implementation. The Verification Working Group is developing a verification methodology for RSPO that would be used to identify sustainable palm oil produced and supplied according to the P&C formally adopted by the roundtable. The Trial Implementation Working Group will test and evaluate various elements or criteria of the P&C for consistency, applicability, practicality and effectiveness in addressing the concerns. BACP’s participation would provide each working group with credible information leading to strategies for biodiversity conservation.

Alternative Scenario.Through BACP’s participation in these two Technical Working Groups, the Program will ensure that biodiversity issues are fully taken into account by the TWGs.

Estimated overall budget and sources co-funding.BACP would contribute $20,000 per TWG, which would be matched 2:1 by the Roundtable membership. Costs would cover the expenses related to a biodiversity and agriculture expert’s time and travel.

Replicability and sustainability.The work of the Technical Working Group feeds into a process that will lead to the adoption and implantation by the RSPO members of the Principles and Criteria that the Project would be testing.

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Project number: 6Project Title: Working with Smallholders to Reduce Biodiversity Impacts from

Palm Oil Production in Indonesia. Target Commodity: Palm oilTarget Country: Indonesia Lead partner(s): Wilmar GroupProgram Activity Component: Component 2: Support better production via site-specific projects.Estimated grant from BACP: $375,000 over three years.Estimated leverage: 1:3

Biodiversity that the project will seek to protect/preserve.Borneo and Sumatra represent distinctive ecoregions within the biodiverse Southeast Asian rain forests, and they host a wide range of ecosystems and habitats. The lowland forests are among the richest in plant species diversity in the world. Rich species diversity is found among different habitats as well, such as the lowland forests on different soils, swamp forests and peat forests. The project addresses the most endangered hierarchical levels of biodiversity on these islands: the landscape-level forests that contain different ecosystems, rich mosaics of habitats and species, and genetic diversity between populations of key species. These large areas are capable of maintaining viable populations of endangered species that live at low density, such as orangutans, tigers and elephants. Rich habitat mosaics within contiguous areas of forest allow seasonal migrations by diverse birds and mammals, maintaining their populations and their essential seed-dispersing and pollinating functions. These large landscapes also typically encompass critical watersheds and many environmental services critical for sustaining development.

Baseline scenario.Oil palm mills have a symbiotic relationship with surrounding smallholders: the mills depend on the smallholders’ production for their economic viability, and the smallholders, for reasons of geography and perishability are captive sellers to the mill (Fresh Fruit Bunches must reach the mill within 24 hours). The mills are therefore in a position to work with smallholders to improve their faming practices. Smallholders in Indonesia are generally only about 70% as productive as plantations, therefore, there is ample room for efficiency improvements. As many of these improvements involved reduced use of inputs, there is a clear benefit to biodiversity.

Barrier. While BMPs for large-scale plantations are reasonably-well known, smallholders need BMPs that require more labor than capital, and that can be effective on 1-5 hectares; these have not yet been documented. Smallholders therefore lack the knowledge to implement these measures.

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Wilmar (and other producers) are interested in improving the environmental practices and overall efficiency of their surrounding smallholders, but they lack the technical skills required.

Project Description.For the proposed project, BACP would enter in a partnership with IFC’s Linkages project and with the Wilmar Group, to assist smallholders who have a partnership with Wilmar to reduce their impact on biodiversity. Project components are likely to be:

1) development, jointly with Roundtable on Sustainable Palm Oil (RSPO), of criteria for sustainability at smallholders level; BACP funds would focus specifically on those practices which lessen farming impacts on biodiversity of global significance.2) implementation of a pilot/research Program around one or several Wilmar operations in Indonesia. 3) feedback/dissemination of results and lessons learned to other RSPO members and beyond; BACP funds would ensure that results and lessons related to biodiversity are clearly articulated.4) participation in the RSPO working group on smallholders; BACP funds would ensure that biodiversity issues are raised with the working group and understood by participants, and that the working group output includes recommendations related to the definition, testing, and adoption of economically viable BMPs that lessen the impacts of production on biodiversity.

Alternative Scenario.The project will bring benefits at several levels. The smallholders trained will improve their practices, leading to a lower biodiversity impact in the areas they farm. In addition, because BACP will prepare a case study on the project and will disseminate it to other roundtable members, the practices that were ground-tested through the project can be adopted by a large number of mills that have relationships with surrounding smallholders.

Estimated overall budget and sources co-funding. The cost of project overall is estimated at $1.5 million over 2-3 years. BACP would contribute 25% ($375,000) of the cost of the project (1:3 leverage). Remaining expenses would be covered by Wilmar and by other IFC funds. It is expected that BACP’s funds would largely be allocated to items 1), 3), and 4) above, whereas the company itself would cover the operational costs related to training.

Replicability and sustainability.The project’s industry partner, the Wilmar Group, has agreed to share the results of the project with other members of the Roundtable for Sustainable Palm Oil (RSPO) thus making its methods and findings available to other growers.

Indonesian smallholdings tend to be 70% less productive than nearby plantations. The profitability of the mills operated by large plantations depends on the level of throughput from the plantation, but also from surrounding smallholders. To the extent that a

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plantation can increase the productivity of its smallholders, the profitability of its mill will increase. Thus there is a built-in incentive for replication.

The economic aspects of the project are also the key to its sustainability. The productivity gains and associated profits generated by the proposed practices will lead to their sustainable adoption by smallholders.

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Project number: 7Project Title: Design and Test Investment Screens to Reduce Biodiversity

Impacts and Brand Risks of Bank Investments.Target Commodity: Palm oil Target Country: Indonesia & Malaysia (but also applicable to other countries)Lead partner(s): WWF Indonesia, HSBC, Profundo, Sawit Watch and possibly

other banks within RSPOProgram Activity Component: Component 4: Encourage the development of financial

services to support biodiversity-friendly practices.Estimated grant from BACP: $26,000 out of a total project size of $80,000Estimated leverage: >1:2

Biodiversity that the project will seek to protect/preserve.In Indonesia and Malaysia, palm oil production and expansion are a concern for the Sundaland hotspot (Borneo, Sumatra, Java, and Bali). Habitat conversion from the expansion of oil palm plantations has a devastating impact not only on the lowland tropical forests which have more tree species per hectare than any other forests studied to date, but also directly on other plant and animal species. Oil palm poses the most significant threat to the widest range of endangered megafauna of any agricultural crop. Species that are affected directly include Asian elephant, Sumatran rhinoceros, tigers, and orangutans. Conversion of natural forest to oil palm has also emerged as the major threat to orangutan populations and habitats, in particular for major populations in lowlands with diversity of dryland, swamp and/or peat forests, where oil palm has made major encroachments. Mammal species density found in palm oil plantation is less than one seventh of the density in primary forests14.

Land development projects for palm oil plantations require large amounts of capital and financial institutions (such as domestic and international banks) can play a key role in influencing their clients’ land development decisions.

Baseline scenario.Leading international banks have developed environmental and social policies and screening procedures to ensure that environmental and social consideration are taken into account in their lending and investment decisions.

However, most banks’ policies and procedures do not take into account industry-specific risks linked to biodiversity, such as reputational risk associated with expansion of palm oil into orang-utan habitat. WWF Indonesia, a founding member of RSPO, working with seven banks and the Indonesian NGO Sawit Watch, has initiated informal consultation between banks and NGOs to identify biodiversity conservation opportunities in the screening of recent loans. Stakeholders involved in this process have provided input to a

14 There are nearly eighty mammal species found in Malaysia’s primary forests, just over thirty in disturbed forests, and only eleven or twelve in oil palm plantations. Source: Wakker, Eric. 1998. Lipsticks from the rainforest. WWF Germany.

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new Bank Indonesia regulation requiring Indonesian banks to assess environmental measures taken by clients when rating the quality of their loans.

The environmental Principles and Criteria (P&C) recently adopted by the Roundtable on Sustainable Palm Oil (RSPO) are not used as screens for investment proposals. The integration of these criteria and their national interpretations into individual bank policies remains a challenge for banks.

Barrier. While general guidance on environmental and social investment screens is available, most banks lack tools to apply them in practice. Effective, cost-effective, and yet robust risk screening and monitoring procedures that take into account the specificities of the palm oil sector are not readily available. Moreover, a large number of banks investing in the palm oil sector, in particular local banks in Malaysia and Indonesia, lack awareness, expertise and capacity (e.g., absence of environmental officers) to develop and implement appropriate in-house screening procedures.

Project Description.This project, proposed by WWF International (Asia-Pacific Forest Program) in partnership with banks, NGOs and palm oil companies (HSBC, Profundo, Sawit Watch, RSPO members, etc.), aims at developing and testing practical, affordable and effective practices for banks to screen the social and environmental impacts of oil palm plantation projects in Indonesia and Malaysia.

The project is based on the assumption that the RSPO principles and criteria can serve as a “checklist” of social, environmental and economic attributes that lenders, investors, insurers and financial advisors can use to assess and manage risk.

The project proposes to produce a Handbook for credit officers on the screening and monitoring of projects in the oil palm sector, including (a) a model bank risk assessment policy for the oil palm sector, (b) briefing notes on sector risk, (c) a streamlined screening and risk management procedure, including model loan contract, covenants and client monitoring procedures, (d) country-specific definitions and guidance on the interpretation of RSPO criteria as well as (e) recommended standard approach to complaints.

Alternative Scenario.If investment screens effectively and consistently incorporate biodiversity preservation opportunities, they become a powerful tool to channel investments towards “better” rather than irresponsible practices. Such investment screens can influence investment decisions, increase the credibility and impact of the RSPO P&C and influence palm oil companies’ land development decisions.

Estimated overall budget and sources co-funding.The total cost of the project is roughly estimated to be US$ 80,000 out of which US$ 54,000 are expected to be co-financed by various other sponsors. The remaining US$ 26,000 would be expected from the BACP.

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Replicability and sustainability.The financing of environmentally unsustainable projects can entail with operational, compliance or reputational risks that can have significant financial impacts: poor environmental planning can increase the client’s vulnerability to flooding, pests, fire and diseases; profitability might be threatened by fines, loss/suspension of permits, damages claims, and implementation of controversial projects might delayed or hindered by increased NGO criticism and campaigns. As banks that have implemented and tested robust and effective screening procedures realize their risk mitigation value, and the screens will become standard industry practice.

In conversations with leading banks in the course of the PDF-B, it became clear that they see it to be in their own interest to work with the financial service industry in palm oil producing countries, to ensure that better environmental risk management becomes a widely accepted industry practice. Industry leaders are therefore expected to play a key role in disseminating results of this project, thereby encouraging the uptake of the screening procedures by local banks and other international banks.

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ANNEX 7: MONITORING AND EVALUATION PLAN

This section presents BACP’s Monitoring and Evaluation framework. The detailed M&E plan will be refined to accommodate any changes or modifications that may occur during implementation.

1. Impact monitoring As BACP is a biodiversity program working through market mechanisms, the impact monitoring will need to address both biodiversity impacts and market impacts. However, since BACP is designed to “pull” reduced biodiversity impact through market demand, the two are logically linked.

1.1 Overall approachBACP Overview. The objective of the BACP is to preserve global genetic, species and ecosystem diversity within agricultural production landscapes, by transforming markets for target agricultural commodities: oil palm, cocoa, sugarcane and soybeans. Production areas for these targeted commodities overlap with areas of globally significant biodiversity. Better Management Practices can reduce the impacts of production on biodiversity, but are faced with certain barriers to adoption. International, multi-stakeholder, industry-led commodity roundtables and the overall value chain and 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.

Each of BACP’s four technical assistance components addresses a specific group of market actors: the supply-side (producers and primary processors such as millers), the demand-side (traders and buyers), the financiers, and the wider enabling environment (government, 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, BACP can have a sustainable and long-term impact on the market for biodiversity-friendly commodities.

M&E Approach. BACP will conduct a baseline, mid-term and terminal evaluation, assessing the program’s progress in transforming the market and the ensuing improvement in biodiversity impacts.

It is notoriously difficult to monitor a project’s direct impact on biodiversity, and all the more so when the project spans three continents (Asia, Africa, and Latin America) and production landscapes covering over 125 million hectares. In addition, many factors result in landscape changes, thus making it difficult to identify the precise exact drivers of each change.

However, the BACP’s market-based approach provides an opportunity for a simplified approach, or proxy, to impact evaluation. Indeed, the BACP supports the adoption of sustainable, market-

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based systems that are embedded in the quality assurance, verification, or certification15 systems to be supported in each commodity market (see Section I.I, Program Activities, TA Component 3: demand-side activities). These systems include in their design regular audits that check on the biodiversity performance levels (as well as performance in other areas addressed by the system). As a result, monitoring the setting up, implementation, and especially the functioning of these systems will allow the BACP to document impacts, as long as the systems include satisfactory biodiversity standards.

For example, one of the indicators in the Logical Framework is “25% reduction in use of soil amendments per unit of production (proxy for soil quality and for effluents & downstream water quality).” The verification system that will be associated with the target environmental performance levels set in the Principles and Criteria of the Roundtable for Sustainable Palm Oil (RSPO) should track use of soil amendments. Therefore, the RSPO verification system will allow BACP to track soil amendments over all verified farms. At this point, companies representing one-third of globally traded palm oil exports are members of RSPO, and as such, they have made a commitment to adhere to these Principles and Criteria. The rate of memberships of RSPO makes clear that verification systems allow tremendous economies of scale in tracking the industry’s performance on the BACP’s indicators.

The RSPO is the farthest advanced of the industry roundtables, and therefore serves as a model to the other roundtables, which will follow the same steps as RSPO in lowering their industry’s environmental (and social) impacts.

The BACP will rely on verification systems where they exist, and will support the development of new systems where they do not exist or where existing ones do not address key biodiversity impacts. The BACP will work to ensure that for each commodity, there exists at least one verification system that incorporates biodiversity performance criteria, and that this verification system is associated with target environmental performance levels (as it that of the RSPO).

Once such a system is in place, it is straight forward for BACP to obtain monitoring data because the verification itself inherently implies that certain performance standards have been met. Quantifying changes in production methods and in market volumes of biodiversity-friendly product then becomes simply a matter of assessing the change in trade volumes of certified product.

For commodities where there is not yet a certification or verification scheme in place that addresses biodiversity (soy, sugarcane, palm oil), the BACP will work with the roundtables to establish one. This way, monitoring will become an integral component of the commodity roundtables, and will be third-party oriented, global, and permanent, rather than just a small-scale, temporary and parallel to the BACP process. BACP will also review existing standards to see if they meet the minimum requirements, and if not, will help set up ones that do.

By working through the roundtables to set up a monitoring scheme, the BACP circumvents the need to establish, on its own, specific commodity-wide performance levels and indicators. Its

15 Certification is an extra step that is not needed for BACP’s verification purposes; where it already exists, it will allow for the same evaluation approach.

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role becomes instead to ensure that the decisions taken by the roundtables lead to a credible and effective monitoring system.

This work will require the following steps.

1. Work with the roundtables to ensure that they are sufficiently multi-stakeholder and transparent so that any work product (e.g., principles, criteria, indicators, and standards) will be acceptable to a wider audience (this is part of the BACP’s routine work).

2. Work within a roundtable Technical Working Group to define target performance levels (i.e., Principles and Criteria). BACP’s presence in the working group will ensure that cost-effective opportunities for reducing the impacts of production on biodiversity are fully reflected in the resulting performance criteria. Note that this will be covered under BACP’s work in Component 3 (demand-side activities).

3. Similarly, work with the TWG to define performance standards, indicators (such as water quality, level of inputs per unit of production, proportion of riparian and sloped land set aside) and verifiers (this is also addressed in Component 3).

4. Work within the roundtable to help ensure that the resulting performance levels and indicators are accepted by the full roundtable membership and that there is a formal consultation and engagement strategy to ensure that there is global “buy-in” even from those that have not been a part of the process. This implies field testing, which is integrated into Components 2 and 3.

5. Finally, work with the roundtable as a whole to ensure that a credible verification scheme is put in place to support the performance criteria.

It should be noted that this verification scheme is a cornerstone of the entire roundtable process, because it gives credibility to all the roundtables’ claims of environmental and social improvement.

1.2 Specific indicators as defined in the Logical Framework

Output indicators related to the wider enabling environment, as defined in the Logical Framework, are:

Agreement within commodity roundtables (as specified in meeting minutes or other roundtable publications) on biodiversity impacts and indicators, and on performance levels for the indicators.

Landscape-level biodiversity indicators and targets for biodiversity, as adopted by the roundtables, include incorporate zoning and land use management plans that protect biodiversity of global significance.

Number of meetings/workshops held with policymakers.

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These flow naturally from support to the verification process described above.

The specific production and landscape-level indicators that BACP would support will vary somewhat by commodity, but will probably consist of the following, which can be found in the output indicators section for program component 2 (field-based production activities), in the Logical Framework (Annex 9):

a. Commitment by companies representing 10% of global production not to expand further into natural habitat.

b. Companies representing 10% of global land use allocated to production of the target commodities commit to adhering to Better Environmental Management Practices, as defined by the roundtables and/or by verification/certification schemes acceptable to BACP.

c. Companies representing at least 10% of global production adopt a land management plan that includes consideration of globally important biodiversity.

d. Level of on-farm natural habitat (selected according to biodiversity values and financial considerations), and in particular riparian area protection.

e. Use of soil amendments per unit of production (proxy for soil quality and for effluents and downstream water quality). Target: 25% reduction.

f. Toxicity per Kg of active ingredients of pesticides per ton of production (for class 1 and class 2 chemicals) Target: 50% reduction.

g. Water use per unit of production. Target: 25% reduction.

1.3 Baseline study

Market transformation baseline: BACP will monitor its overall impact on its target commodity markets, in order to measure the extent to which it meets its market transformation objectives. The Logical Framework identifies the following market indicators:

a. Field confirmation of the financial viability of biodiversity-related BMPs.

b. Number of FIs that incorporate biodiversity into their investment screens for the target commodities (including screens for syndicated loans). 16 Target: at least 5.

c. Existence of verification systems (or other systems such as certification) that incorporate the biodiversity performance targets defined by the roundtables. Target: at least one such system per commodity

d. Percentage of global trade for a given commodity represented by companies who buy certified or verified product. (indicates that a significant portion of buyers globally are at the table and helping create standards with a commitment to adhere to them.) Target: 10% of companies.

16 The level at which biodiversity concerns are integrated into FIs’ screening policies must be beyond what is specified in local and national legislation as well as beyond IFC’s Policy and Performance Standards on Social & Environmental Policy.

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e. Percentage of commodity production and of global trade allocated to a certified or verified product. Target: 25% of commodity traded.

These indicators can be quickly assessed through a quick “barometer-type” market survey. The barometer survey would be undertaken in conjunction with the roundtable. It would help the roundtable take the pulse of the global market for Better commodities and track its progress through time. It is expected that the cost of the barometer survey would be shared with the roundtables.

1.4 Mid-term and terminal evaluationBoth the midterm and terminal evaluations will revisit the studies conducted during the baseline evaluation, assess the changes that have taken place using the indicators devised by the roundtables, and discuss causality/links to BACP. The design of the final evaluation might be changed to reflect lessons learned in the course of the mid-term evaluation. Given the importance of the roundtables to the Program’s success, particular attention will be paid to monitoring their effectiveness; lessons learned will be shared within a given roundtable and among roundtables.

1.5 Monitoring and evaluation of individual projectsAll site-specific projects funded by BACP will need to track baseline and final production conditions, according to indicators agreed to from the outset. These indicators will vary by project and by BMP, but should generally reflect the production-level indicators set out in the log frame and mentioned above (and agreed to by the roundtables, if applicable).

Where possible, site-specific projects should also track relevant costs (such as changes in input costs and labor costs) and yields as this information will be very useful for further dissemination of the BMP in question.

At the outset of the program, the M&E contractor will establish a standard M&E template for each category of TA. The template will include process monitoring and 1-3 outcome indicators.

The cost of monitoring site-specific projects will be integrated into the project’s own budget.

1.6 Other

In addition to the activities described above, BACP will also fill in the Biodiversity Tracking Tool for GEF Strategic Priority 2 (production landscapes). The Tracking Tool document states: "This tracking tool will be applied three times: at work program inclusion, at project mid-term during project implementation, and at project completion. The completed forms from projects will be aggregated for analysis of directional trends and patterns at a portfolio wide level."

2. Process / performance monitoring planAt the start of the project, and independent M&E specialist (see under Staffing, below) will prepare a process and performance monitoring plan. This straightforward plan will lay out the milestones and deliverables for the program (including early milestones related to program start-up). The plan will allow the BACP management to track the project’s performance against

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established milestones. The monitoring plan will be updated as needed every year. A review of the milestones achieved will feed into the PIR reporting process.

3. StaffingBACP will employ a part-time independent monitoring specialist who will be responsible for preparing the Terms of Reference for all activities related to M&E. The baseline, mid-term and terminal evaluations will be carried out by independent third parties. The monitoring specialist will also liaise with the technical specialists who will participate on behalf of BACP in the relevant commodity Technical Working Groups.

4. BudgetThe M&E budget for BACP covers the cost of the baseline, mid-term and final monitoring and evaluation, including the process evaluation. Results of individual projects will be tracked by the project itself. The work to integrate biodiversity concerns into performance criteria forms part of BACP’s Enabling Activities and will be covered under the main Program budget. The M&E Budget is presented in Table 1, below.

Table 1: Budget for BACP Monitoring and Evaluation.Cost per commodity

Total

Baseline Market barometer $ 40,000 $ 160,000

Mid-term Market surveyMid-term process evaluation

$ 40,000 $ 35,000

$ 160,000 $ 140,000

Final Market surveyFinal process evaluation

$ 40,000 $ 35,000

$ 160,000 $ 140,000

M&E advisor [1] $ 240,000

Total $ 190,000 $ 1,000,000

[1] assumes approximately 25% of a consultant’s time for the first year, the year of the mid-term review, and the last year of implementation, and 10% of their time for the intervening years.

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ANNEX 8: LOGICAL FRAMEWORK

Hierarchy of Objectives

Key Performance Indicators M&E / Data Collection Methodology

Critical Assumptions

GEF Operational Program: Conservation and Sustainable Use of Biological Diversity Important to Agriculture

GEF strategic prioritiesSP-2:Mainstreaming Biodiversity (…) integrate biodiversity conservation in agriculture (…).

SP-4: Best Practices Improve the analysis, synthesis, and dissemination of best practices, innovative approaches, and new tools.

Global Objective:

Preserve global genetic, species and ecosystem diversity within agricultural production landscapes, by transforming markets for the target agricultural commodities

Outcome/ Impact indicators :

Companies representing 10% of global trade volumes buy certified or verified product..17

25% of global trade sourced from certified or verified sources.

Checks on a small number of representative farms or plantations to confirm that they are implementing the practices to which they committed, and that the practices are in fact yielding benefits to biodiversity; specific biodiversity indicators will be determined on a case-by-case basis in

Project Reports:

Regional baseline assessments.

Mid-term evaluation and program final evaluation by external evaluator.

(from Objectives to Goal)

The barriers to implementation of BMPs can be overcome via targeted market interventions (e.g., provide documentation/demons-tration of BMP methods and benefits).

It is feasible to convert abandoned or degraded lands back to productive agriculture use.

17 Sustainably produced: producer adheres to RSPO Principles and Criteria (for palm oil), or to a biodiversity-friendly certification method (cocoa).

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consultation with biodiversity experts.

Confirmation that a sample of companies that have committed to land set-asides have indeed followed through on their commitments.

Adoption of Better Management Practices will slow down conversion of natural habitat.

Output from each Program component: (i) Enabling environment:

Existence of functional, private-sector-led, multi-stakeholder, international roundtables.

Constructive dialogue with the public policy-makers and the roundtables: conduct workshops/ meetings with policy makers.

Output Indicators:

Agreement (as specified in meeting minutes or other roundtable publications) within the roundtables on biodiversity impacts, indicators and performance levels for the indicators.

Landscape-level biodiversity indicators and targets for biodiversity, as adopted by the roundtables, include incorporate zoning and land use management that protect biodiversity of global significance

# of meetings/workshops held..

Project Reports:

Mid-term evaluation, final evaluation.

(from Outputs to Objective)

The Roundtables will define effective biodiversity performance levels and indicators.

Government will be open to dialogue on biodiversity issues.

There are incentives to the government to engage in these activities.

(ii) Production and landscape level:

Biodiversity-friendly practices are incorporated into production and on-farm processing, leading to a measurable decrease of the farm’s impact on biodiversity within the production landscape.

* (see note below)

Commitment by companies representing 10% of global production not to expand further into natural habitat.

Companies representing 10% of global land use allocated to production of the target commodities commit to adhering to Better Environmental Management Practices, as defined by the roundtables and/or by verification/certification schemes acceptable to BACP.

Companies representing at least 10% of global production adopt a a land management plan that includes consideration of globally important biodiversity.

An increase in on-farm natural habitat

The Roundtables verify compliance with performance standards; BACP helps them define the biodiversity performance standards and verification means.

BMPs promoted by the program will have a measurable beneficial impact on biodiversity.

If producers are shown that BMPs will increase productivity and profitability, and are offered TA on how to operationalize BMPs, they will adopt the BMPs.

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(selected according to biodiversity values and financial considerations), including 100% riparian area protection.

25% reduction in use of soil amendments per unit of production (proxy for soil quality and for effluents & downstream water quality).

50% reduction in toxicity of Kg of active ingredients of pesticides per ton of production (for class 1 and class 2 chemicals).

25% reduction in water use per unit of production.

(iii) There is a significant mainstream demand from traders, buyers, processors, other purchasers, and retailers, for commodities produced using biodiversity-friendly means, as identified by independently certified or verified systems.

Field confirmation of the financial viability of biodiversity-related BMPs.

Existence of certification systems (or other systems such as verification) that incorporate use the biodiversity performance targets defined by the roundtables.

Program Manager will obtain annual data on trade volumes from Roundtables and/or certifiers

Traders, off-takers, processors, and other purchasers see benefits in purchasing biodiversity-friendly commodities (traceability, long-term sustainability of supply, PR/image, response to retail consumer demand, possibility to offer a higher-quality/novel product etc)

The production of certified/verified commodities leads to a decreased impact on biodiversity.

(iv) Financial institutions recognize the economic benefits of biodiversity-friendly production methods and practices, and

At least 5 FIs (including IFC) incorporate biodiversity concerns into their investment screens for the target commodities (including screens for syndicated loans). 18

Partner FIs will be required to report on their progress.

FIs recognize that biodiversity-friendly practices can increase their clients’ overall resource efficiency and productivity, and

18 The level at which biodiversity concerns are integrated into FIs’ screening policies must be beyond what is specified in local and national legislation as well as beyond IFC’s Policy and Performance Standards on Social & Environmental Policy.

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integrate them into their operations.

decrease social and market risks.

FIs are willing to invest time into incorporating biodiversity concerns into their lending practices.

FIs find a market for these new services.

(*) These levels of performance will be part of the certification systems that BACP will promote and that will developed by the roundtables with input from BACP.

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ANNEX 9: INCREMENTAL COST ANALYSIS

IntroductionThe primary objective of the BACP is to preserve global genetic, species and ecosystem diversity within and nearby agricultural production landscapes, by transforming markets for target agricultural commodities. BACP will reduce the impact of agriculture on the production landscape by identifying and promoting cost-effective opportunities to reduce the impacts of agriculture on biodiversity and by moving sustainably-produced commodities from niche markets to the mainstream.

BACP is targeting four commodities: palm oil and cocoa as “fast track,” as well as sugarcane and soybeans. BACP’s initial activities will take place in Malaysia (oil palm), Indonesia (oil palm and cocoa), Ghana and Côte d'Ivoire (cocoa) and Brazil (sugarcane and soybeans). Other countries might be added as warranted in the course of the program’s 10-year lifetime.

BACP’s GEF budget is $19 million, to be awarded in a first phase of $7 million, and a second phase of $12 million. GEF funds will be co-financed at a ratio of at least 1:2; co-finance will come from the private sector, NGOs, bi-lateral and multi-lateral donors, foundations and other parties. More significantly, it is expected that the TA funded by BACP will leverage millions of dollars’ worth of private sector investment that is guided by biodiversity-friendly principles.

Incrementality Of ProgramThe core of the Program – the rationale – is centered around incrementality. 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.

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 major buyers. Yet for all four target commodities, the market is not yet delivering large-scale quantities of sustainable

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supply, because of the barriers mentioned above. Thus BACP represents an incremental investment that will allow the GEF to support consideration, at all levels, of the value chain to seek biodiversity-enhancing opportunities.

Incrementality Of Individual ProjectsBACP will work in four different commodities, in a variety of countries and production landscapes, promoting measurable performance standards which can be achieved through the adoption of different agricultural Better Management Practices (BMPs). The program will use tools such as documenting the business case for a BMP that reduces agricultural impacts on biodiversity of global significance; site-specific projects to field-test such BMPs, supporting Financial Institutions to incorporate biodiversity criteria into their investment screens, building the demand for biodiversity friendly product, or strengthening the biodiversity component of roundtable dialogues in target commodities. This multiplicity of approaches, although necessary to achieve the Program’s market transformation goal, complicates the incremental cost analysis.

In order to conduct the incremental cost analysis, it is helpful to present the BACP project selection criteria. BACP will prepare a market transformation Strategy which will define, for a given two-year period, what the program’s funding priorities will be for each commodity. An RFP will be issued to solicit projects; it will include clear and transparent project selection criteria. The criteria echo the GEF’s own project funding criteria; among other things, all proposals must demonstrate that the application of BACP funds to proposed project would bring about incremental benefits to biodiversity of global significance. Proposals should identify key threats to biodiversity and indicate how the project will mitigate those threats.

The project selection criteria related to incrementality are shown below:

IncrementalityThe proposal must demonstrate that without funding from BACP, the project would not have taken place, or that it would have taken place at a later date, at a smaller scale, or with fewer benefits to globally significant biodiversity.

The proposed activity must be transformational—it must be pivotal in bringing about significant change regarding the impact of producing or processing the target commodity on biodiversity, or in stimulating significant market uptake of commodities that are produced with measurably fewer impacts on biodiversity.

BACP funds will only be used to support performance levels that are beyond compliance with national or local laws and regulations, and that meet (or exceed) IFC’s Policy and Performance Standards on Social & Environmental Sustainability.

Thus, while on the one hand, it is not possible to say, before implementation, which specific projects will be implemented with BACP funds, it is possible to affirm that all such projects will meet the GEF’s incrementality requirements.

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In the course of project preparation, BACP has worked with potential partners to develop a number of sample projects. This analysis will discuss the incremental cost aspects of one such project, to illustrate the incrementality expected in funded projects. Sample projects are presented in further detail in Annex 6.

Sample Project

Project descriptionThe main objective of this project, “Implementing a Comprehensive System of Biodiversity-friendly Cocoa Production through the Supply Chain,” proposed by Zamacom S.A. (Côte d’Ivoire), a subsidiary of the global trading company Ecom Agroindustrial Corp. Ltd, is to train cocoa smallholders in a comprehensive model of biodiversity-friendly cocoa farming that will improve the economic, environmental and social sustainability of thousands of cocoa farmers. (See Annex 6 for a more detailed project description).

Zamacom is currently providing Technical Assistance to farmers in order to make sure the cocoa delivered was produced according to better environmental practices. Using an Identity Preserved Scheme (IPS), the delivered cocoa is traceable to the farm, which will provide an added value that the final user, including large multi-national chocolate and confectionery firms, are willing to pay for.

The BACP grant would enable the Zamacom S.A. to extend its Technical Assistance to a much wider range of farmers, ensuring reduced biodiversity impacts on a wider scope in a quicker timeframe and increasing commensurately the availability of greater volumes of biodiversity-friendly cocoa into the mainstream market. The grant would support the review and, where applicable, the enhancement of the components of Zamacom’s Technical Assistance that address biodiversity of global significance.

Baseline scenarioZamacom’s own resources have allowed it to build capacity and deliver training to 2,500 farmers (owning 10,000 hectares and producing about 3,000 MT of cocoa per year) by working with 3 cooperatives over 4 years. The training included the following elements with relevance to biodiversity: - Protecting indigenous trees- Protecting water courses- Proper pruning and sanitary removal of infected pods to avoid further contamination

(IPM)- Proper application, including quantity and timing, of low-toxicity phytosanitary

products - Planting native species of companion/shade trees

Baseline Costs.The project has cost US $ 200,000 per year over the last four years.

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Baseline Benefits.The biodiversity impacts of the training are: - farm lifetime prolonged by 25-50%, and thus reduced need to expand production into

forested lands; - farm productivity increased by around 15%, further decreasing the need to expand

land under cultivation;- better downstream water quality through reduced pesticide use;- increased number of indigenous trees; and- increased shade cover, providing habitat for forest and soil-dwelling flora and fauna.

These benefits have only reached 2,500 farmers producing on 10,000 hectares so far, and can be expected to reach an additional 4,000 hectares per year in a business-as-usual scenario (e.g. no support from BACP).

Alternative scenarioThe alternative scenario will allow Zamacom to scale up their training operations, and to enhance the biodiversity component of the Technical Assistance provided to farmers. Whereas only 3,500 farmers a year would be trained in the baseline scenario, one of the alternatives would allow an additional 3,500 farmers to be trained over three years, resulting in an additional 16,000 hectares of land farmed according to biodiversity-friendly techniques. This scaling up could not take place without funds from BACP. Furthermore, the land under this program can be farmed for 25-50% longer, thus reducing the need to expand into forest habitat to maintain the same level of production.

The benefits to the farmers include an increase in productivity estimated at around 15%, and an 10-20% decrease in production costs. They can also expect to overall quality of their cocoa to increase. These benefits, which increase a farmer’s profitability and annual income, should lead to a permanent (and therefore sustainable) adoption of the techniques proposed.

Note that the final project proposal would include an M&E component that will allow the project to quantify the biodiversity benefits listed above (and others as applicable) so that lessons learned will be available to be shared with others. This will extend BACP’s impacts well beyond the specific investments made by the program, creating indirect impacts that will be greater than the project’s direct impacts.

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Costs and projections according to three potential scenarios

Baseline scenarioTotal annual Cost

BACP cost

Better Cocoa purchases (MT)

# of coops # Farmers Hectares

Current figures $200,000 $0 3,000 3 2,500 10,000Projected year 1 $200,000 $0 4,000 4 3,500 14,000Projected year 2 $200,000 $0 5,000 4 3,500 14,000Projected year 3 $200,000 $0 8,000 4 3,500 14,000Total $600,000

(3 years)$0 8,000

(annual)4 3,500 14,000

Alternative scenario A: BACP funds 33% and Zamacom 67%Total Cost BACP

costBetter Cocoa purchases (MT)


Current figures $200,000 $0 3,000 3 2,500 10,000Alternative, year 1 $300,000 $100,000 5,000 5 4,000 16,000Alternative, year 2 $300,000 $100,000 7,500 6 5,000 20,000Alternative, year 3 $300,000 $100,000 12,000 6 5,000 20,000Total $900,000

(3 years)$300,000(3 years)

12,000 (annual)

6 5,000 20,000

Alternative scenario B with Zamacom maintaining its current level of funding: BACP funds 33%, Zamacom 33% and third party co-financer 33%

Total Cost BACP cost

Better Cocoa purchases (MT)


Current figures $200,000 $0 3,000 3 2,500 10,000Alternative, year 1 $600,000 $200,000 6,000 6 5,000 22,000Alternative, year 2 $600,000 $200,000 10,000 8 7,000 30,000Alternative, year 3 $600,000 $200,000 17,000 8 7,000 30,000Total $1,800,000

(3 years)$600,000(3 years)

17,000 (annual)

8 7,000 30,000

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Baseline Alternative *

BACP Increment

Global Environment Benefit (scenario A), hectares under better management * 14,000 20,000 6,000

Global Environment Benefit (scenario B), hectares under better management * 14,000 30,000 16,000

Costs (scenario A) $600,000 $900,000 $300,000

Costs (scenario B) $600,000 $1,800,000 $600,000

*The alternative and global environmental benefit only take into account direct impacts of the project. The project will also have indirect impacts which will be at least as significant, see below for more detail.

Incremental Costs and Benefits. Incremental costs. Depending on scenarios shown above, the incremental cost covered by BACP over the three-years project lifetime would be $300,000 (Scenario A) or $600,000 (Scenario B).

Direct benefits. The direct incremental benefit would be an additional 6,000 – 16,000 hectares of land under better management.

Indirect benefits. The project would also bring about an indirect benefit: through dissemination efforts and market forces, the better practices applied during the program will be adopted more broadly. Consider that the final output figure (17,000 MT per year) represents about 1.5 percent of cocoa production in Côte d’Ivoire (about 0.6% of global production); while this may seem like a small figure, it is in fact a significant amount, that can cause a tipping point in cocoa production practices. Through its parent company ECOM, Zamacom has relationships with major buyers who are interested in purchasing better cocoa. BACP’s funds would allow Zamacom to go from its current pilot-level field-testing operations to the next level of scaled-up, improved production systems. Once that is in place, it becomes possible for buyers to purchase or forward contract higher volumes; the consequent trade levels would allow Zamacom to scale the program up further, without support from BACP. Securing significant volumes would allow producers to forward contract their production and use that to obtain cheaper working capital. This in turn would encourage even more of them to take part in the program.

In addition, the project would establish a viable commercial precedent for the private sector to invest in biodiversity farmer training as a part of their supply chain management. Through this model, other aspects of training that improve production, fermentation and overall product quality can also be incorporated into the model. If the model is successful, other industry players are likely to copy it.

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Finally, and most importantly, the practices adopted through the project will lead to a significant increase in farm lifetime (estimates range from 25-50%), and therefore, will decrease the pressure on expansion into natural habitat. Given that the practices increase a farmer’s revenues, they are likely to be adopted over the long term, making the project sustainable.

Though it is not possible at this time to quantify the project’s indirect benefits, it seems reasonable to expect the indirect benefits to be greater than the direct benefits.

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ANNEX 10: LIST OF LETTERS OF INTENT ON FILE WITH IFC

IFC has signed letters of intent with various parties regarding cooperation on the BACP. A copy of these letters is available from the IFC. The parties are listed below.

Industry organizations

1. RSPO (Roundtable on Sustainable Palm Oil)

2. Better Sugarcane Initiative

3. RTRS (Round Table on Responsible Soy)

4. WCF (World Cocoa Foundation)

5. MPOA (Malaysian Palm Oil Association)

6. GAPKI (Indonesian Palm Oil Producers Association)

Private sector companies

7. ECOM Agroindustrial Corp. Ltd. (an international trader)

8. PT Smart Tbk (palm oil producer with 98,000 planted hectares in Sumatra and Kalimantan)

9. PT SOCFIN Indonesia (SOCFINDO - palm oil producer with large plantations in Indonesia).

NGOs

10. Conservation International

11. Rainforest Alliance

12. The Nature Conservancy (TNC)

13. WWF

Donors and other bilateral organizations

14. FMO (Netherlands Development Finance Company)

Other

15. Harvard University/UNESCO: Great Ape Survival Project.

16. UNEP: Great Ape Survival Project

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ANNEX 11: COMPLIANCE WITH IFC’S SOCIAL AND ENVIRONMENTAL SAFEGUARDS

THE WORLD BANK/IFC/M.I.G.A.

OFFICE MEMORANDUMDATE:February 20, 2006

TO:Catherine Cassagne, CESEF

FROM:Peter Neame, CESIG

Robert Horner, CESIG

EXTENSION:31564/32297

SUBJECT:BACP Biodiversity and Agricultural Commodities Program (GEF BIO&COM: 523359)Environmental and Social Clearance Memorandum

1. The Environment and Social Development Department Project Support Unit has reviewed the project document regarding the above project. The Biodiversity and Agricultural Commodities Program (BACP) is a proposed GEF program to provide support for various initiatives which will support the inclusion of biodiversity-enhancing measures into agricultural production practices. This will be achieved through various technical assistance programs as well as through financing of specific project level initiatives through intermediaries such as NGOs, industry associations, or foundations.

2. Because this program is wholly oriented to achieving positive environmental change through addressing biodiversity issues in agriculture, and will be implemented through technical assistance, this program is determined to be a Category C investment according to IFC’s environmental and social review procedures. As such, no detailed environmental and social review of program activities is required. The Program should ensure that, for any project-level interaction, the project operations receiving assistance meet IFC’s Exclusion List, and the operations are conducted according to local and national environmental and social laws and regulations. This project is cleared by CESIG for GEF review and processing.

3. The suggested language for the environment section of the relevant GEF documentation is as follows:

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“This is a category C project according to IFC's environmental and social review procedure. Because this program is wholly oriented to achieving positive environmental change through addressing biodiversity issues in agriculture, and will be implemented through technical assistance, this program is determined to be a Category C investment according to IFC’s environmental and social review procedures. As such, no detailed environmental and social review of program activities is required. The Program should ensure that, for any project-level interaction, the project operations receiving assistance meet IFC’s Exclusion List, and the operations are conducted according to local and national environmental and social laws and regulations.”

4. If I can be of additional assistance, please let me know. If any significant changes are made to project structure and activities, during the GEF application and approval process, please return to us for further advice.

DISTRIBUTION: Patel, Bulmer, Chemerinski, IFC Information Center, CESIG Project File

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ANNEX 12: STAP REVIEW

STAP ReviewBiodiversity and Agricultural Commodities Program (BACP)

STAP Reviewer: Julian CaldecottFinal report, 18 February 2006

Contents

1. OVERVIEW 63

2. OBSERVATIONS IN RELATION TO KEY GEF ISSUES 64

2.1 Scientific and technical soundness 642.2 Global environmental benefits 692.3 GEF context 692.4 Replicability 702.5 Sustainability 70

3. OBSERVATIONS IN RELATION TO SECONDARY GEF ISSUES 71

3.1 Linkages to other Focal Areas 713.2 Linkages to other programmes and action plans 713.3 Other environmental effects 723.4 Involvement of stakeholders 723.5 Capacity-building aspects 733.6 Innovativeness 733.7 Incremental cost analysis 733.8 Monitoring and evaluation arrangements 76

4. CONCLUSIONS 77

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1. OVERVIEW

The central environmental issues to be addressed by the BACP globally, but with a focus on Brazil, Côte d’Ivoire, Ghana and Indonesia, concern the production of agricultural commodities in areas of high biodiversity value, with primary reference to palm oil and cocoa, and secondarily to soya and cane sugar. These issues particularly include land conversion, soil erosion and exhaustion, over-use of agrochemicals, and over-use of water. The basic assumptions of the BACP are: (a) that it is possible to reduce the impacts of agriculture on biodiversity by using ‘Better Management Practices’ (BMPs); (b) that it is possible to work with stakeholders to remove barriers to the adoption of BMPs throughout these sectors of agribusiness; and (c) that market transformation techniques can be used to make commodities grown under BMP conditions become the norm rather than the exception in global trade. Environmental BMPs in particular can include land use planning and zoning (to set aside key ecosystems and biodiversity resources), planting on degraded lands (rather than in natural ecosystems), maintaining soil fertility (e.g. by composting and mulching), and reducing the use of agrochemicals (e.g. by integrated pest management).

The BACP is intended to encourage and enable the routine use of environmental BMPs in the production of palm oil and cocoa in the target countries, thereby contributing to the conservation of globally-significant biodiversity. To accomplish this, the project aims to collaborate with organised forums of business and other stakeholders that already exist for palm oil, cane sugar and soya, and that is incipient for cocoa. In each case, BACP will offer technical assistance to define how real-world commodity producers could introduce particular BMPs on their plantations, to make it easier for financiers to understand the merits of investment in BMPs, and to encourage the global market to accept a price premium on, or show other signs of approval for, commodities produced to BMP standards. This is expected to result in an increasing share of production being more biodiversity friendly than before.

The BACP is fully consistent with GEF Strategic Priorities, and compliant with GEF Operational Programmes 13 (Conservation and Sustainable Use of Biological Diversity Important to Agriculture), OP 12 (Integrated Ecosystem Management), OP 14 (Persistent Organic Pollutants) and OP 15 (Sustainable Land Management). It is judged to be scientifically and technically sound, likely to yield highly-significant global environmental benefits, and scores highly on replicability and sustainability criteria. It is also likely to contribute to other GEF Focal Areas (on Climate Change, International Waters, Land Degradation, and Persistent Organic Pollutants), and strongly complements other international commodity initiatives. There has been strong involvement of stakeholders, and the capacity of key participants is likely to be strengthened through implementation of the project. Finally, the BACP is assessed as highly innovative. It is recommended that this important project, with its great potential for generating global environmental benefits, should proceed swiftly to the next phase of its development.

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2. OBSERVATIONS IN RELATION TO KEY GEF ISSUES

2.1 SCIENTIFIC AND TECHNICAL SOUNDNESS

The central environmental issues to be addressed by this project globally, but with a focus on four countries (Brazil, Côte d’Ivoire, Ghana and Indonesia19), concern the production of agricultural commodities in areas of high biodiversity value. Of primary consideration is palm oil (from the African palm Elaeis guineensis) and cocoa (from the American shrub Theobroma cacao); while of secondary concern is soya (from the Chinese legume group Glycine spp.) and cane sugar (from the South-east Asian grass group Saccharum spp.). These issues particularly include the following:

Land conversion. The process by which natural ecosystems are replaced by artificial ones dominated by one or other of these crops has probably destroyed more globally significant biodiversity than any other, since these tropical and sub-tropical plants have so widely replaced ecosystems that were previously very rich in species and, especially in the case of islands, endemic species. It has also undermined the lives, livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation.

Soil erosion and exhaustion. 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, diverse communities of soil organisms, and material that is washed away to damage downstream ecosystems (such as coral reefs) and economic infrastructure (such as dams).

Use of agrochemicals. Insecticides, herbicides and fungicides contaminate soils and ground waters, where their broad-spectrum toxicity can destroy whole communities of organisms. Meanwhile, along with mill and processing effluents, nitrogen-based fertilizers are a chief source of excess nitrogen in terrestrial and aquatic ecosystems, which causes eutrophication, hypoxia/anoxia and ecosystem death. This can threaten fisheries and biodiversity, as well as altering food webs and simplifying ecological energy flows. Nitrogen deposition was adopted as a key global indicator of biodiversity loss by the CBD in 2004.

Use of water. At a global level, the agricultural sector is responsible for about 70% of all freshwater withdrawal, more than twice the amount of industrial, municipal, and all other users combined, and this consumption can threaten downstream ecosystems or those that share aquifers with crops; where evaporation rates are high relative to rainfall, irrigation can also cause salt contamination of surface soils.

The basic assumptions of the BACP are: (a) that it is possible, for the selected crops, to reduce the impacts of agriculture on biodiversity in some or all of these dimensions using ‘Better Management Practices’ (BMPs); (b) that it is possible to work with stakeholders to remove barriers to the adoption

19 Malaysia is also to be considered, but it is not yet clear in what detail, or whether this will be done at a federal or state level (bearing in mind it is the states that regulate land use, and those in Malaysian Borneo – Sabah and Sarawak – are particularly autonomous, and Sabah especially has converted large amounts of lowland rain forest to oil palm).

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of BMPs throughout these sectors of agribusiness; and (c) that market transformation techniques can be used to make commodities grown under BMP conditions become the norm rather than the exception in global trade.

The BMPs concerned encompass a broad range of environmental, social, and labour practices that could allow companies to improve efficiency of resource use, create marketable by-products, reduce waste, encourage employee loyalty, secure market access, and reduce risk of adverse relations with local stakeholders. Environmental BMPs in particular can include:

Land use planning and zoning. Areas of exceptional biodiversity value can be identified and set aside for preservation, but this needs to happen at a landscape level with due attention to the need to maintain connected networks of viable ecosystems. Some of the areas required to maintain biodiversity and wildlife corridors are also areas that are marginally productive and barely worth converting, including riparian strips and areas of steep slope.

Planting on degraded lands. Areas that have already been degraded by repeated logging and fire, for example, are abundant in tropical countries and are clearly more expendable from a conservation point of view than other, less disturbed, ecosystems. They can be cheaper to acquire, and easier and cheaper to plant, than natural areas, and doing so would relieve some of the pressure on natural habitats.

Maintaining soil fertility. Many practices reduce soil erosion and the need for chemical inputs, including the careful siting of plantings and infrastructure, the elimination of burning, setting-aside riparian strips, floodplains and areas of excessive slope, terracing, establishing cover crops (particularly nitrogen-fixing legumes), and building or maintaining organic matter in the soil through mulching, etc.

Reducing the use of agrochemicals. Integrated Pest Management (IPM), precision application methods, spot applications as needed and the elimination of prophylactic use of agrochemicals are all ways to reduce their use. Composting crop residues and mill effluents for use as fertilizers can reduce amounts dumped elsewhere, while also reducing the need for artificial fertiliser inputs.

The BACP is intended to encourage and enable the routine use of environmental BMPs in the production of palm oil and cocoa in the target countries, thereby contributing to the conservation of globally-significant biodiversity. To accomplish this, the project aims to collaborate with organised forums of business and other stakeholders that already exist for palm oil, cane sugar and soya, and that is incipient for cocoa. In each case, BACP will offer technical assistance to define how real-world commodity producers could introduce particular BMPs on their plantations, to make it easier for financiers to understand the merits of investment in BMPs, and to encourage the global market to accept a price premium on, or send other signs of approval for, commodities produced to BMP standards. This is expected to result in an increasing share of production being more biodiversity friendly than before.

The targeted forums that already exist are the Roundtable for Sustainable Palm Oil, the Better Sugarcane Initiative, and the Roundtable for Responsible Soy Production. The main players in the cocoa industry have already endorsed the creation of a Better Cocoa Roundtable, but there are other potential partners including the World Cocoa Foundation and the Sustainable Agriculture Initiative. The project document describes a “symbiotic” relationship between BACP and the various forums, in which the project helps to fund activities that address biodiversity of global importance, and makes sure that the roundtables adequately address biodiversity concerns, while participation allows BACP to track key issues in

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commodity markets, build contacts with the main players, and solicit potential projects. Funding from BACP would be used to support the roundtables in the following ways:

by providing a share of core support to the forum secretariat;

by helping to identify measurable indicators for biodiversity and habitat both at the landscape and farm level (this being done through each forum’s Technical Working Group or TWG);

by helping to identify information gaps or the need to organise existing knowledge (also through the TWGs);

by support research on indicators or standards;

by helping to identify and vet global performance standards for each indicator;

by supporting the field testing of the proposed standards; and

by support efforts to understand the limitations or strengths of global standards.

Complementing these activities, the BACP will address ‘demand-side’ support for BMPs, since the market must be willing to absorb increased production of such commodities. One way to do this, it is proposed, is to develop quality assurance, verification or certification systems, which allow buyers to select products that meet particular standards, in this case that they are BMP-produced and therefore more ‘biodiversity-friendly’ than alternatives. The key assumption is that a significant proportion of potential buyers would exhibit such a preference. This seems likely, and the stakeholder forums have already made a start on relevant production standards to allow the design of certification schemes. Finally, the BACP will likewise address issues concerning the financing of BMPs, in the awareness that there is already interest among leading financiers in the agricultural sector to incorporate biodiversity considerations into investment screens.

The BACP’s approach is largely to do with overcoming the following barriers to the adoption of BMPs:

that BMPs are not yet clearly defined or field-tested, so it is hard to assess their economic and biodiversity costs and benefits, or to adapt them to different production regions;

that there is a lack of organised and accessible knowledge about possible BMPs among producers, including their methods, costs, and benefits;

that few financial analyses exist for potential BMPs;

that large number of smallholders are relatively inaccessible, including those accounting for a third of palm oil production in Indonesia and nearly all production of cocoa in Ghana, Côte d'Ivoire and Indonesia, and BMPs suitable for smallholder use have not yet been documented;

that in the absence of information and analysis about BMPs on the supply side, and informed pressure for them on the demand side, many potential investors and financiers are reluctant to commit themselves to BMPs;

that there is a lack of tailored financial instruments to reduce the up-front costs or defer the repayment of loans, which are needed to encourage producers to rehabilitate degraded lands (rather than financing their projects by clearing and selling forests);

that there is limited access to financing for innovative or uncollateralized investments within local banking systems;

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that laws which might encourage biodiversity-friendly BMPs may be weak, unclear, contradictory or not enforced; and

that rising production and commodity prices create a ‘boom’ mentality that discourages innovation and change.

It is intended that these barriers will systematically be overcome by the BACP through applied research, by organising and disseminating knowledge, leveraging financing, and deploying a range of market transformation techniques. The project document summarises the proponent’s considerable track-record in these areas, and especially in investment leverage and market transformation.

The aims of the BACP are explained in the following terms. First, the three major groups of market actors for each commodity will be targeted, these being the producers, traders and purchasers, and financial institutions. For each group, the BACP will create an enabling environment that generates incentives for greater supply, demand, and financing for biodiversity-friendly products. This approach is reflected in the following specific objectives:

first, international multi-stakeholder commodity dialogues and supportive government policies support the integration of biodiversity concerns at all levels of the value chain;

second, biodiversity-friendly practices are incorporated into production and on-farm processing, leading to a measurable decrease of the farm’s impact on biodiversity of global significance;

third, significant mainstream demand is created for commodities produced according to biodiversity-friendly means; and

fourth, financial institutions recognize the economic benefits of biodiversity-friendly production methods and practices, and integrate them into their operations.

To achieve these aims, the BACP will undertake activities grouped in six components. In addition to components for monitoring and evaluation, and programme management, which are addressed in detailed annexes in the project document, the four others are:

Component 1: Supporting activities for an enabling environment.

Activities will include, for each commodity and location:

ascertaining biodiversity-friendly practices; prioritizing practices on the basis of impact on biodiversity and potential for market adoption. documenting each priority practice in terms of technique, biodiversity benefits, financial and

economic costs and benefits, and other benefits (such as increased farm lifetime, supply security, social benefits);

disseminating the results of each study; participating in roundtable meetings (with a BACP representative on each steering committee); contributing, financially or in-kind, to the roundtable’s TWGs on biodiversity issues; encouraging policy dialogue at all levels of government.

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Component 2: Supporting better production via site-specific projects.

The types of activities that the BACP will support include:

creating commodity-specific learning and referencing tools to give producers information about BMPs that reduce biodiversity impacts;

implementing proven BMPs when there are market failures that prevent the private sector from adopting them, and the methods have good replication potential;

conducting applied research to demonstrate the value of BMPs to biodiversity and businesses; supporting land-use management planning for protection of ecosystems and biodiversity; supporting production methods that contribute to the restoration of degraded habitats and/or the

restoration of wetlands or biological corridors in agricultural landscapes; encouraging non-production related biodiversity conservation initiatives engaged in by parties

involved in the production of agricultural commodities (e.g. biodiversity set-asides, zoning); and working through larger market chain actors (mills, plantations, traders, etc.) to support the adoption of

BMPs by smallholders.

Component 3: Supporting increased demand for products with more positive biodiversity impacts.

Activities on the demand side will include:

supporting quality assurance, verification or certification schemes that address biodiversity concerns (e.g. the formulation, field-testing, and approval of biodiversity-related principles, criteria, standards, and verifiers);

supporting the setting up of systems and practices to allow measurability and traceability; documenting and increasing awareness among purchasers of the benefits to them of purchasing

biodiversity-friendly commodities, and of their availability; and supporting applied research that addresses possible barriers to the uptake of such products, and how

to overcome them.

Component 4: Encouraging financial services to support biodiversity-friendly practices.

Activities will include, for each commodity and location:

working with traders or other private sector actors who would like to use supply-chain finance (that is, to use future purchase commitments as collateral against short-term loans for agricultural inputs);

working with financial institutions towards incorporation of biodiversity concerns into their screening methods; and

working with financial institutions on the development of financial instruments that address market needs related to biodiversity practices (e.g. ones that are responsive to the cost differential between developing a new plantation on degraded or forest land), and on ways to market those instruments to their customers.

The BACP, then, is designed to work closely with existing, well-organised groups of stakeholders, and to help them meet a number of their needs in exchange for, and/or in ways that create an incentive for, greater biodiversity-friendliness in their business activities. This is an ambitious but well thought-out and well-targeted project that seems to be scientifically and technically sound.

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2.2 GLOBAL ENVIRONMENTAL BENEFITS

As explained in the project document, expanding production of palm oil, cocoa, soya and cane sugar in countries that possess globally-significant biodiversity is likely to have continuing, strongly negative consequences for that biodiversity. The project document reviews the position in the BACP’s four target countries, and explains the global biodiversity significance of Indonesia, Ghana, Côte d'Ivoire and Brazil. Indonesia is a megadiversity country in which logging, forest fires and agricultural conversion, especially for oil palm, are precipitating a severe biodiversity crisis, with escalating rates of endangerment and extinction among the extremely rich biota of the country’s 17,000 or so islands. Ghana and Côte d’Ivoire lie in a highly distinctive biogeographical unit but one that is among the most critically fragmented biodiversity habitats on earth, where deforestation from logging and slash-and-burn agriculture is still prevalent, and where cocoa production landscapes continue to advance into the remaining forest habitat. Brazil is another megadiversity country, and includes the rain-forested Amazon Basin, the Cerrado woodland savannah which covers 21% of the country, and the highly-fragmented endemic-rich Atlantic Forest, all of which are under severe pressure from agricultural expansion, including for cane sugar and soya production.

It is hard to over-state the global importance of the biodiversity resources that are under threat in these four countries, nor the importance of finding practical ways to relieve these pressures. The systematic introduction of biodiversity-friendly BMPs into the agribusiness sector in these particular locations is likely to generate major global environmental benefits. These will be amplified greatly if, as expected, the BACP induces a mainstreaming of similar incentive structures in other crop sectors and other countries through its influence on global patterns and preferences, both in the market and among the institutions that finance the world’s agriculture.

The BACP document itself envisions that global environmental benefits will come from:

commodity-wide global improvements, on the grounds that over 125 million hectares worldwide are dedicated to producing the four target commodities, so even a small improvement in production practices, multiplied over the area concerned, will have a global impact on biodiversity;

local improvements in the circumstances of globally-important biodiversity, on the grounds that changes may relieve specific threats to endangered species in a particular ecosystem (e.g. the establishment of wildlife corridors in oil palm landscapes for the benefit of orangutans); and

improvements in global knowledge, since the BACP will contribute significantly to understanding of complex agricultural ecosystems and their interaction with the global economy.

2.3 GEF CONTEXT

The BACP is fully aligned with GEF Strategic Priorities as approved by the GEF Council in 2003, and addresses two of them in particular:

Mainstreaming Biodiversity in Production Landscapes and Sectors, since the BACP will facilitate the mainstreaming of biodiversity within production systems, support demonstration projects with high replication value, and develop market incentives for conservation.

Generation and Dissemination of Best Practices for Addressing Current and Emerging Biodiversity Issues, since the BACP will create and disseminate biodiversity best practices in the

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agricultural commodities sector, and will build on lessons learned to improve the sustainability of its impact.

The BACP is also consistent with CBD decisions on the conservation and sustainable use of agricultural biological diversity, and the directly-related GEF Operational Programme 13 (OP 13), as well as with others such as OP 12 (Integrated Ecosystem Management), OP 14 (Persistent Organic Pollutants) and OP 15 (Sustainable Land Management). The BACP also responds to the recommendation by GEF’s second Overall Performance Study (OPS 2) to engage more directly with the private sector in the area of biodiversity. The BACP’s approach is also consistent with the interim GEF report on Mainstreaming Biodiversity in Production Landscapes and Sectors, which points to “improving production practices” as one of the four priority areas for GEF intervention. In addition, the BACP is aligned with the GEF strategy to enhance engagement with the private sector, particularly in agriculture in ways relevant to globally-important biomes and the strategic use of non-grant financial instruments. Finally, the project screening process to be used by the BACP will help ensure the GEF-eligibility of individual projects.

2.4 REPLICABILITY

Replicability is an explicit goal in the design of the BACP project-level initiatives, and is one of the criteria on which proposed projects will be assessed. The emphasis on financial sustainability of site-specific projects, will further enhance potential replicability since projects are intended to be proven, and then copied. The market transformations envisioned to increase demand for biodiversity-friendly commodities will have an across-the-board influence on the preferences of consumers, who will apply those preferences to everything that they buy, and not just the examples trialled by the BACP. Similarly, financial institutions enlightened by concern for biodiversity will be more likely to recognise, accept and lend to a wide range of new initiatives that are perceived as ‘biodiversity friendly’ as well as sound in business sense. The dissemination of organised knowledge explaining and justifying BMPs is a process specifically designed to encourage replication on a commodity-wide basis through activities such as information sharing and training on proven methods and technologies. Finally, the lessons learned by BACP in a given commodity, disseminated through the planned mechanisms as well as the media and word-of-mouth, may also have great replication value for other agricultural commodities.

2.5 SUSTAINABILITY

The aim of sustainability is intrinsic to the process of market transformation, since purchasers who consistently prefer goods produced to BMP standards will reward those who produce such goods, encouraging and enabling investment in their expanded production. This is an effect seen in such areas as the worldwide growth of ‘fair trade’, ‘organic’ and FSC-certified produce sales. Connected logic applies to all the other aspects of the BACP, in that discoveries and the dissemination of knowledge about how to implement BMPs creates an irreversible recognition that they could be adopted if conditions were right, while raised awareness of BMPs among financial institutions might simultaneously make it possible to adopt them. It is hard to identify a starting point in this network of causality, but the fact that the BACP will address all these dimensions at once, using established agribusiness forums to ‘crack’ each commodity, country and sector, means that no specific starting point is needed. Instead, one can envision

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that as all the pieces of the puzzle are played, there will eventually come a ‘tipping point’ at which market and agribusiness transformation occurs.

The project document lists a number of ways in which the social and business sustainability of the whole system will be promoted, drawing attention to the range of benefits flowing from the adoption of the BMPs. All of these may contribute to a ‘virtuous cycle’, and include:

the reduced use of toxic agrochemicals benefits local and downstream biodiversity, as well as farmers and agricultural labourers and their families living in neighbouring and downstream communities;

reduced soil erosion and effluents improves freshwater habitat, benefiting those who depend on fish and other aquatic organisms for protein;

retiring marginal agricultural lands on existing farms results in increased natural habitat for wildlife, reduced erosion, wildlife corridors, protection of riparian areas, and supply of various environmental goods and services;

reduced pesticide use makes produce more attractive to consumers while also being more wildlife friendly;

improved soil organic matter content increases soil health and habitat quality for other species, but also increases productivity, reduces input use and increases net profits.

3. OBSERVATIONS IN RELATION TO SECONDARY GEF ISSUES

3.1 LINKAGES TO OTHER FOCAL AREAS

Climate Change. The encouragement of planting degraded and often treeless lands with tree crops suggests that there may be a net carbon storage advantage that could provide a linkage to the Focal Area on Climate Change. Maintenance of soil ecology may also be relevant here.

International Waters. Reduced nitrogen run-off may be expected to contribute to the decline of eutrophication, anoxia and dead zones in marine environments, and reduced soil erosion may reduce damage to coral reefs, both of which may provide a linkage to the Focal Area on International Waters.

Land Degradation. The application of BMPs that set aside and/or restore natural ecosystems, and that result in sustainable tree crops being introduced on degraded land, should provide a linkage with the Focal Area on Land Degradation.

Persistent Organic Pollutants. Many pesticides that are still in use in many countries are persistent organic pollutants or POPs (including Aldrin, Chlordane, DDT, Dieldrin, Endrin, Heptachlor, Hexachlorobenzene and Mirex), so any reduction in pesticide usage might be expected to contribute to the Focal Area on POPs.

3.2 LINKAGES TO OTHER PROGRAMMES AND ACTION PLANS

The BACP will seek synergy and complementarity with other international commodity initiatives, including:

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International Finance Corporation (IFC) mainstream operations; other IFC Programs, including the Linkages Program which features outreach to small and medium

enterprises, and the GEF-funded, IFC-managed, Environmental Business Finance Program; industry initiatives, including the IFC/WWF BMP Initiative, Roundtable on Sustainable Palm Oil, the

Sustainable Agriculture Initiative Platform, the World Cocoa Foundation, Better Sugarcane Initiative, and the Roundtable for Responsible Soy Production; and

those by non-governmental organisations, such as the Rainforest Alliance, the World Wide Fund for Nature, The Nature Conservancy, and Conservation International.

The proponent is part of the World Bank Group, and the BACP’s collaboration with other GEF implementing agencies will synergise with policy or regulatory reform, government capacity building, smallholder rural initiatives, and other initiatives that are being progressed by the Group. The BACP will focus on any such engagement that might help remove regulatory barriers to the use of BMPs in the target countries.

Collaboration with UNEP is envisioned, such as with some of the industrial forums set up by its Division of Technology, Industry and Economics, including that on Sustainable Production and Consumption Activities, and its Initiative on Integrated Assessment of Trade-Related Policies and Biological Diversity in the Agriculture Sector.

Other examples of potentially complementary initiatives include the UNDP’s Conserving Globally Significant Biodiversity in Cocoa Production Landscapes in West Africa, and UNEP’s Conservation & Use of Crop Genetic Diversity to Control Pests & Diseases in Support of Sustainable Agriculture.

3.3 OTHER ENVIRONMENTAL EFFECTS

The overall environmental impact of the project should be favourable if its key outputs are obtained. Moreover, the potential for beneficial replication, multiplication and influence by similar initiatives across numerous other commodities, sectors and countries is a real one.

3.4 INVOLVEMENT OF STAKEHOLDERS

The proponent (IFC) has a long history of engagement with the agricultural sector, and the project document summarizes about US$ 500 million in investments by its Agribusiness Department in the four BACP target crops and in all the target countries except Ghana. The project document also makes clear that the proponent has long been engaged, through the IFC/WWF BMP Initiative, with international, multi-stakeholder, industry-led commodity roundtables for the target crops. This deep familiarity with the whole sector and its participants shows through clearly in the quality of analysis and explanation of the project.

Many stakeholders will be affected by or involved in the project at implementation, including private producers, traders, food manufacturers and retailers, financial institutions, civil society (e.g. NGOs, academics), local and national governments, commodity roundtables, and bilateral and multilateral organizations, research institutes and local communities. Many of these will be accessed through the

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proponent’s participation in the various commodity roundtables, with the membership of the palm oil forum alone including over 100 important actors in all the above categories, representing up to half one-half the volume of palm oil traded world-wide.

Smallholders account for about a third of palm oil production, and most African cocoa production, and the BACP will work with them indirectly through larger organizations, such as mills (for palm oil and sugar) or traders (for cocoa), which often have an inter-dependent monopoly relationship with surrounding smallholders. Local communities and stakeholders will be crucial at the level of individual projects, and their participation and consultation will be needed in view of their knowledge of local biodiversity and production methods.

3.5 CAPACITY-BUILDING ASPECTS

Capacity-building impact is most likely to occur within the commodity roundtables, where the BACP proposes to provide core support to the forum secretariat, while offering technical assistance to develop measurable indicators, identifying information gaps or the need to organise existing knowledge, supporting research on indicators or standards, identifying and vetting global performance standards for each indicator, supporting the field testing of the proposed standards, and supporting efforts to understand the limitations or strengths of global standards.

Several of the example projects annexed to the project document specify an explicit capacity building function, for example: “The project will build capacity at cooperative and farmer level and involve the following activities: (a) build capacity at cooperative level to ensure financial credibility, transparency of management, knowledge of the member base and baseline data collection (b) hands-on training of farmers through instruction on demonstration plots (c) establishment of project logistics and product traceability (e.g., local bagging stations at coop level, local cocoa quality certification).”

3.6 INNOVATIVENESS

The BACP is rooted in recent efforts such as the IFC/GEF Environmental Business Finance Programme and the IFC/WWF BMP Initiative, and in current and emerging initiatives, such as the commodity stakeholder forums. It is nevertheless highly innovative, in attempting a rational, integrated process of transformation across huge sections of global agriculture, engaged in particular with critical locations where change can be expected to benefit biodiversity most strongly.

3.7 INCREMENTAL COST ANALYSIS

a) Baseline scenario

The agricultural commodity sector would probably transition more slowly to more sustainable production practices because of regulatory pressures from local governments and to service the small but growing consumer demand for more low-input agricultural products, mainly in developed countries. The work of the roundtables is ambitious, but slow, and meanwhile irrecoverable and large-scale biodiversity loss will occur due to soil erosion, water contamination, loss of habitat, pesticide over-use, etc. It is also unlikely that biodiversity of global significance would be specifically factored into the definition and implementation of BMPs.

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b) GEF Alternative

This will accelerate the transformation to sustainable production practices, while helping to save significant global biodiversity by applying targeted TA in support of the market transformation process. GEF support will help to remove the existing barriers and push private sector players to focus their efforts in a direction consistent with the CBD and the GEF. In addition, BACP’s funds will ensure that the roundtables maintain a focus on biodiversity of global significance, and that impacts are addressed as effectively as possible.

c) Project selection criteria

These aim to ensure that all projects meet GEF incrementality requirements, and include: that the proposal must demonstrate that without funding from BACP, the project would not have

taken place, or that it would have taken place at a later date, at a smaller scale, or with less benefits to biodiversity of global significance.

that the proposed activity must contribute to bringing about a marked change in the impact of farming or primary processing on biodiversity, or in the market uptake of commodities with a lowered biodiversity impact.

that the proposed measures go beyond compliance with national or local laws and regulations; that the proposed measures meet or exceed IFC’s Policy and Performance Standards on Social &

Environmental Sustainability.

d) Example projects

Project 1: Cocoa farmer training in Cote d’Ivoire.Objective: To develop a model of ‘biodiversity-friendly’ cocoa farming.Proponent: A Trader active in target West African countries.Background: The Trader is currently providing Technical Assistance to farmers in order to make sure the cocoa delivered was produced according to better environmental and social management practices. The TA is provided in the context of a supply-chain finance arrangement: the trader provides the TA to improve farmer practices; in exchange, the farmer commits to using these practices. In parallel, the Trader offers the farmer financing to allow the purchase of inputs for the coming crop; a commitment to sell to the Trader acts as collateral for the financing.Investment: The BACP grant would enable the Trader to extend its TA to a much wider range of farmers ensuring greater availability of sustainable cocoa. The grant would also be used to review and enhance the components of the Trader’s TA that address biodiversity of global significance.

Project 2: Smallholder training in Indonesia.Objective: To develop a model of ‘biodiversity-friendly’ smallholder oil palm cultivation.Proponent: The largest refiner and exporter of palm oil and palm-related products in Indonesia.Background: The refining/exporting group depends on smallholders who sell to its palm oil mills. These mills have a symbiotic relationship with surrounding smallholders. They depend on smallholders’ production for their economic viability, and the smallholders, for reasons of geography and perishability are captive sellers to the mill. The mills are therefore in a position to work with smallholders to improve their faming practices.Investment: The BACP grant would allow: (a) development of criteria for sustainability at smallholders level, focussed on practices which lessen farming impacts on biodiversity; (b) implementation of pilot or research activities around one or several operations in Indonesia; (c) feedback and dissemination of results and lessons learned, focussing on those related to biodiversity; and (d) participation in the RSPO

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TWG on smallholders, focussing on biodiversity issues and yielding recommendations for the definition, testing, and adoption of economically viable BMPs that lessen the impacts of production on biodiversity.

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3.8 MONITORING AND EVALUATION ARRANGEMENTS

a) Impact monitoring

Ten percent of the BACP budget is allocated to M&E. This amount will cover the design and implementation of the detailed M&E plan, including a baseline, mid-term and final evaluation, as well as efforts to assess progress in market transformation, and the ensuing improvement in biodiversity impacts. It is notoriously difficult to monitor a project’s direct impact on biodiversity, however, and all the more so when the project spans three continents, and production landscapes covering over 125 million hectares. A proxy will therefore be used, based on the regular audits to check on biodiversity performance that are embedded in the quality assurance, verification or certification arrangements that are made for each commodity. Monitoring the establishment, implementation and functioning of these systems will help to demonstrate impacts, provided they include satisfactory biodiversity standards. It will also be necessary, however, to link the adoption of BMPs to precise area- or species-based metrics, while the broader landscape/land-use activities will be evaluated separately.

For commodities where there is not yet a certification or verification scheme in place that addresses biodiversity, the BACP will work with the roundtables to establish one. Hence monitoring will become integral to the work of the commodity roundtables, and will become third-party oriented, global, and permanent (in short, mainstreamed). The BACP will also review existing standards against minimum requirements, and will help improve them if necessary. By working through the roundtables to set up a monitoring scheme, the BACP’s role becomes to ensure that the decisions taken by the roundtables lead to a credible and effective monitoring system.

This will require the following steps to be taken with each roundtable and TWGs concerned with biodiversity issues: (a) confirm that the roundtables are sufficiently inclusive and transparent for products such as principles, criteria, indicators20 and standards to be acceptable to a wider audience; (b) define principles, criteria, performance standards, indicators and verifiers; (c) ensure that these are accepted by the full roundtable membership and other stakeholders; and (d) ensure that a credible verification scheme is put in place to support the performance criteria.

The specific indicators that BACP would support will vary somewhat by commodity, but will probably consist of the following: (a) existence of landscape zoning with due attention to biodiversity of global significance; (b) existence of a farm land management plan consistent with the above zoning; (c) level of on-farm natural habitat (selected according to biodiversity values and financial considerations), and in particular riparian area protection; (d) use of soil amendments21 per unit of production (proxy for soil quality, and for effluents and downstream water quality); (e) toxicity of kg of active ingredients of pesticides per ton of production; (f) water use per unit of production.

b) Baseline study20 e.g. water quality, level of inputs per unit of production, proportion of riparian and sloped land set aside.21 A soil amendment is any material added to a soil to improve its physical properties, such as water retention, permeability, water infiltration, drainage, aeration and structure; the goal is to provide a better environment for roots.

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For the market transformation baseline, the BACP will monitor its overall impact on its target commodity markets, in order to measure the extent to which it meets its market transformation objectives. The following market indicators are relevant: the number of financial institutions that incorporate biodiversity concerns into their investment

screens for the target commodities (including screens for syndicated loans); the existence of verification systems (or other systems such as certification) that incorporate the

biodiversity performance targets defined by the roundtables; the percentage of global trade represented by companies who buy certified or verified product; and the percentage of production and of global trade allocated to certified or verified product.

These indicators can be quickly assessed through a quick “barometer-type” market survey. The barometer survey would be undertaken in conjunction with the roundtable. It would help the roundtable take the pulse of the global market for Better commodities and track its progress through time. It is expected that the cost of the barometer survey would be shared with the roundtables.

c) Mid-term and final evaluation

The mid-term and final evaluations will revisit the studies conducted during the baseline evaluation, assess the changes that have taken place using the indicators devised by the roundtables, and discuss causality/links to BACP. The design of the final evaluation might be changed to reflect lessons learned in the course of the mid-term evaluation.

d) Monitoring and evaluation of individual projects

All site-specific projects funded by BACP will need to track baseline and final production conditions, according to indicators agreed at the outset. These indicators will vary by project and by BMP, but should generally reflect the production-level indicators set out above. Where possible, site-specific projects should also track relevant costs (changes in input costs, labour costs, etc.) and yields, as this information will be very useful for further dissemination of the BMP in question. The cost of monitoring site-specific projects will be integrated into the project’s own budget.

4. CONCLUSIONS

This has the makings of an excellent project document, which describes an important, innovative and holistic initiative which is likely to have profoundly beneficial effects on global biodiversity. This reviewer has only the following minor reservations and suggestions for further improvement:

Reference could be made to the fact that land conversion has also undermined the lives, livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation (see suggested text in Section 2.1).

It would help to understand how Malaysia will be dealt with in this system (i.e. is it a target country, and will Peninsular/federal, Sabah and Sarawak be treated separately – see Footnote 1).

Reference should be made to nitrogen deposition as a CBD indicator of biodiversity loss, and one of the inputs that BMPs would reduce (see suggested text in Section 2.1).

Reference should be made to salinisation in the context of over-use of water in agriculture (see suggested text in Section 2.1).

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Contraindications for planting on degraded land should be considered to include: (a) that such areas may already have lost much soil quality; (b) that criteria have yet to be agreed for deciding when the damage to an ecosystem is so extreme and irreversible as to justify sacrificing it through conversion to agriculture; and (c) that the processes by which lands are degraded (farming, ranching, etc.) may generate ownership claims that could affect the cost and ease of acquisition.

Note the correct name of UNEP’s Division of Technology, Industry and Economics;

There is a potential concern that moral hazard is inherent to any mechanism that brings together key players in a biodiversity-consuming industry, generates best practices, and then certifies its own members as being compliant with ‘biodiversity-friendly’ practices, which could be viewed as a way to avoid punishment by consumers upset by the destruction of rain forests. In this sense, full participation of the BACP in the roundtables and TWGs is a strength which could be emphasized.

Organic farming methods might be considered as one of the BMP options, in view of the recent market transformation in favour of organic products in many countries.

A final point to consider for the BMPs is that too often agricultural plantations are not just monocultures at the species level, but also at the clonal level. Large stands of genetically-identical plants are at high risk of pest and disease attack, and the maintenance of on-farm genetic diversity should be explicitly encouraged by the project.That said, in the view of this reviewer, the BACP is an important and innovative project, with great potential for generating global environmental benefits, should proceed swiftly to the next phase of its development.

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ANNEX 13: RESPONSE TO EXTERNAL REVIEW

a) IFC Response to STAP review of 18 February 2006 by Julian Caldecott.

The reviewer’s comments reflect a strong background and a clear understanding of the BACP. The IFC has addressed the Reviewer’s comments as follows.

Reference could be made to the fact that land conversion has also undermined the lives, livelihoods and cultures of peoples who previously used the ecosystems for hunting, gathering, grazing or shifting cultivation (see suggested text in Section 2.1).

See section E: Background, paragraph on Land Use.

It would help to understand how Malaysia will be dealt with in this system (i.e., is it a target country, and will Peninsular/federal, Sabah and Sarawak be treated separately – see Footnote 1).

See section II A, Country Selection and Eligibility.

Reference should be made to nitrogen deposition as a CBD indicator of biodiversity loss, and one of the inputs that BMPs would reduce (see suggested text in Section 2.1).

See section E: Background, paragraphs on Input Use, and on Reduced Use of Inputs.

Reference should be made to salinisation in the context of over-use of water in agriculture (see suggested text in Section 2.1).

See section A: Introduction, paragraph on Degradation of Water and Soil Resources.

Contra-indications for planting on degraded land should be considered to include: (a) that such areas may already have lost much soil quality; (b) that criteria have yet to be agreed for deciding when the damage to an ecosystem is so extreme and irreversible as to justify sacrificing it through conversion to agriculture; and (c) that the processes by which lands are degraded (farming, ranching, etc.) may generate ownership claims that could affect the cost and ease of acquisition.

See Section I, Component 2.

Note the correct name of UNEP’s Division of Technology, Industry and Economics;

Noted.

There is a potential concern that moral hazard is inherent to any mechanism that brings together key players in a biodiversity-consuming industry, generates best practices, and then certifies its own members as being compliant with ‘biodiversity-friendly’ practices, which could be viewed as a way to avoid punishment by consumers upset by the destruction of rain forests. In this sense, full participation of the BACP in the roundtables and TWGs is a strength which could be emphasized.

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This moral hazard would indeed be present if industry were acting on its own. However, the roundtables have been careful to include social and environmental NGOs as members, precisely for this reason (ex: the social NGO Sucrethique is on the Steering Committee of the Better Sugarcane Initiative; the RSPO membership includes has 5 environmental NGOs and 4 social NGOs, and four board members are from NGOs). Thus while IFC’s presence will contribute to the overall credibility of the roundtables, it is not a determining factor.

Organic farming methods might be considered as one of the BMP options, in view of the recent market transformation in favour of organic products in many countries.

Organic farming is not exactly a BMP, it is a label which provides guarantees for the consumer’s health, rather than for biodiversity. While certain practices from organic farming may be applicable within BACP, BACP must remain centered on biodiversity. Organic farming alone cannot save orang-utangs and other globally threatened species. In the countries and commodities where BACP will work, organic may be have its place, but must be blended with strong farm-level and landscape-level zoning. It is also worth noting that farmers can use pesticides adequately and still protect endangered species and habitat.

A final point to consider for the BMPs is that too often agricultural plantations are not just monocultures at the species level, but also at the clonal level. Large stands of genetically-identical plants are at high risk of pest and disease attack, and the maintenance of on-farm genetic diversity should be explicitly encouraged by the project.See Section I, Program Activities, Component 2.

b) Response to Comments from the Convention’s Secretariat

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c) Response to Comments by the GEF Secretariat and Other Agencies

c.1 Response to the GEF Secretariat review

1. Country Ownership

Country DrivennessExpected at Work Program inclusion: The proponent has to make sure that the individual projects under the program are fully consistent with the criteria on country driveness.

IFC response: This has been added to the proposal, please see paragraph 128.

EndorsementExpected at Work Program inclusion: LoE of Ghana & Malaysia dated January 2006.

IFC response: In addition to Ghana and Malaysia, IFC obtained endorsement letters from Côte d'Ivoire and Indonesia.

2. Program and Policy Conformity

Program Designation and ConformityExpected at Work Program inclusion: (i) Program indicators have to be formulated that are in correspondence with the GEF targets formulated in the GEF Business plan.

(ii) SP2 and OPs adequate.

IFC response: (i) Please see the revised Logical Framework, prepared in conjunction with our M&E specialist following a training workshop on the new Results Framework in early April.

(ii) Noted.

Project DesignExpected at Work Program inclusion: Criteria are mentioned throughout the proposal as being instrumental. However project selection criteria are general and could be applied to any project. The specifics are lacking. The BD performance criteria need to be designed at appraisal.

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Expected at CEO endorsement: Please finalize project selection criteria including project specific BD performance criteria.

IFC response: Biodiversity criteria and project selection criteria including specific biodiversity performance criteria will indeed be further refined at appraisal.

Expected at Work Program inclusion: (i) Triggers for phase two should be clearer and more specific.

Expected at CEO endorsement: (ii) Please provide clear and specific triggers for phase two including an assessment to build on lessons learned from Phase 1.

IFC response: (i) The triggers are described in Section IV-B (Basis for Possible Second Phase of BACP). Paragraph 209 is new, and further specifies the triggers that will be assessed. As suggested by comment (ii) above, more detail on specific triggers will be provided at appraisal.

(ii) As mentioned above, more detail on triggers will be provided at appraisal. The review also requests an “assessment to build on lessons learned from Phase 1.” Paragraph 208 of the Project Document states that “the request for the second phase will come following the mid-term evaluation, which (…) will measure the BACP’s performance against the market transformation indicators presented in the Log Frame and in Annex 7 (Monitoring and Evaluation Plan), as well as against additional indicators that might have been identified in the Market Transformation Strategy.” Thus the triggers for phase two do include an assessment (the mid-term evaluation), so as to build on lessons learned from Phase 1.

Sustainability (including financial sustainability)Expected at Work Program inclusion: Adequate but will need to be monitored closely (M&E plan) during implementation

IFC response: Noted.

ReplicabilityExpected at Work Program inclusion: Adequate but will need to be monitored closely (M&E plan) during implementation


Stakeholder involvementExpected at Work Program inclusion: (i) A stakeholder involvement plan has to be presented.

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(ii) It has to be described how the key stakeholder group, the private sector companies dealing with the commodities, were involved in the development of the proposal.

IFC response: (i) please see paragraphs 195 - 201 (note that paragraph 196 is new) which explain how IFC has already and will involve stakeholders.

(ii) see paragraph 202 (new), which explains how private sector companies were involved in developing the proposal.

Monitoring and Evaluation Expected at Work Program inclusion: (i) M&E approach has to be described and M&E system based on the RBF should be presented with measurable impact and outcome indicators.

(ii) Monitoring and evaluation will be an essential part of this project. Please mention that the full M&E Plan that is to be drafted during implementation will focus on impact and outcome indicators and will be submitted to GEF for review.

IFC response: (i) Please see the M&E framework fully described in Annex 7, which is closely tied to the RBF/Logical Framework. Section 1.2 in particular specifies indicators from the RBF/Logical Framework that BACP will monitor.

(ii) Done, please see paragraph 146.

Expected at CEO endorsement: Please provide tracking tools.

IFC response: As mentioned in the detailed M&E plan, “In addition to the activities described above, BACP will also fill in the Biodiversity Tracking Tool for GEF Strategic Priority 2 (production landscapes). The Tracking Tool document states: "This tracking tool will be applied three times: at work program inclusion, at project mid-term during project implementation, and at project completion.” ” During appraisal we will also establish a distinction between program level and project level tracking tools and how the latter aggregate into the former. Hard data on area etc. can only be produced as specific field projects start to be submitted.

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3. Financing

Financing PlanExpected at Work Program inclusion: (i) Information on the status of the negotiations with regards to the co-financing has to be provided.

(ii) Please adjust co-financing numbers in cover page and tables A&4 to match.

(iii) 5 Letters of intent to work w/ project provided: FMO,WWF, ECOM, Socfindo

IFC response: (i) Regarding the status of co-financing negotiations: it is not possible at this time to further specify co-financing arrangements. BACP will fund individual projects to be selected by a steering committee on the basis of a number of project criteria (see Project Document, section I-K, The BACP Project Cycle and Project Selection Criteria). Once implementation begins, BACP will request, receive, and review proposals, and will decide on which projects it will fund in each target commodity. At that time, co-financing negotiations will be finalized.

In the meantime, BACP has received letters of intent from 16 potential partners. Each letter outlines the way in which the partner proposes to work with BACP, and explicitly states the partner’s understanding and acceptance of BACP’s co-financing requirements.

(ii) Done. Note that the discrepancy came from the fact that Tables A (Executive Summary) and 4 (Project Document) presented only the BACP Phase 1 budget, whereas the cover page also includes PDF-B funds. The revised Tables A and 4 now have a line showing PDF-B funds.

(iii) As of April 26 2006, IFC has received a total of 16 letters of intent from industry, industry organizations, NGOs, UNEP, and other potential partners. The full updated list can be found in Annex 10.

Expected at CEO endorsement: Letters of commitment have to be provided. Please provide a full financing plan and letter of commitments or minutes of negotiation reflecting co-financing.


Implementing Agency FeesExpected at Work Program inclusion: To be negotiated.

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4. Institutional Coordination and Support

Consultation, Coordination, Collaboration between IAs, and IAs and EAs, if appropriateExpected at Work Program inclusion: (i) Information should be provided on the envisaged coordination and collaboration mechanisms.

(ii) Please include relevant UNEP Greening the cocoa industry project (Rainforest Alliance certification and Kraft's co-financing)

IFC response: (i) Please see paragraph 238 on coordination and collaboration mechanisms.

(ii) Done, see paragraph 236 of Project Brief.

Expected at CEO endorsement: Information on the status of the agreements with the agencies supporting relevant initiatives should be provided.


Response to reviews

STAPExpected at Work Program inclusion: Adequate

IFC response: noted.

c.2 Response to UNEP’s Comments

Comments:Further to conversations and correspondence between UNEP and IFC regarding the Pipeline 22 submission of the UNEP/GEF Rainforest Alliance project concept "Greening the Cocoa Industry", we were disappointed not to find mention of this coordination or the proposed relationship between the 2 projects.

In their submission, the Rainforest Alliance noted inclusion of biodiversity criteria in its established cocoa certification standards and confirmed their private sector partner and co-financier (est. $10m), a major player in the cocoa industry, Kraft Foods. Please note that the UNEP project will be submitted under GEF-4 and draw from RAF country specific allocations.

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Response: We thank UNEP for their comments. Indeed, we have had discussions with the

Rainforest Alliance (RA) about the above-mentioned project. At the time however, the project was in a very early stage and the concept note had not yet been formulated. Later, we were not sent a copy of the proposed concept note submission and were unaware of developments. However, both UNEP and RA have been mentioned explicitly in the proposal in several ways and capacities, living the door open for any relevant cooperation. We now also have received letters of intent from both UNEP and RA (see Annex 10); these letters are included in the work program submission package.

In addition to above, we are now also including a specific mention of collaboration with the “Greening the Cocoa Industry” Project, in the section of the project brief that concerns collaboration between IAs and EAs.

We look forward to further dialogue and cooperation with UNEP and RA.

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ANNEX 14: RESPONSE TO GEF COUNCIL MEMBERS’ COMMENTS

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