Revitalising smallholder coconut farms

A new Fund will focus on investments into āluān’s coconut replanting program on the island of Simeulue, Sumatra, Indonesia. Upfront conservation finance to conserve critical species and habitats is provided through grants, and on an ongoing basis through annual interest payments to sister organisation EcosystemImpact. The Fund has the potential to be scaled alongside āluān and other coconut businesses, and into other smallholder agricultural supply webs.

The Fund addresses the challenge of the lack of functioning alternatives to unsustainable and environmentally destructive agriculture business models in Indonesia. The typical palm oil model involves large-scale deforestation and mono-cropping, which is actively diminishing biodiversity and driving climate change.

Target beneficiaries will be smallholders whose farm productivity will be boosted through the replanting of senile coconut trees, new planting on degraded land, and intercropping. Positive environmental impacts include avoided use of chemicals from insecticides and pesticides, and forest and wildlife conservation.

Environmental challenges

- Unsustainable land use and extractive business-as-usual agricultural business models in Indonesia.

- Very few proven business models to revitalise the agriculture sector in a sustainable manner.

- Aging & senile coconut trees, which is drastically reducing farmer incomes, and threatening the viability of the coconut sector. In Asia, productivity is estimated to decline more than 80 percent by 2027 due to aging trees. At this rate, demand for coconut products will far outpace supply.

- Low levels of conservation finance, and where available it is not sustainable year-on-year.

- Lack of integration / direct link between conservation and sustainable livelihoods.

Gender specific challenges

- Women-specific: less access to job opportunities; inflexible working conditions; men ‘culturally’ identified as heads of household and targeted as beneficiaries; limited access to meaningful work.

Financial challenges

- Lack of patient investment capital. Maximum 5-year turn-arounds do not align with the replanting of agriculture commodities, especially coconuts.

- Lack of investment finance in early stage businesses in this sector.

- Difficulty bridging sustainable conservation & business activities in frontier landscapes with the international community and the opportunities and insights it has to offer.

A new Fund will finance an integrated coconut tree replanting, intercropping and conservation initiative that builds on a 30 hectare pilot program undertaken by āluān in 2019-2020.

The initial project targets the replanting of 1,000 hectares of unproductive and degraded land in Simeulue, which is owned by 700-1,000 smallholders. The Fund will generate revenue through benefit-sharing contracts with the smallholders that entitles it to 40% of all produce from the new coconut plantations and intercropping. In return, the Fund will provide all upfront capital required to establish the plantations, provide extension services and organic certification, and act as market off-taker for the produce.

The Fund will pay 3% annual interest for conservation activities. These payments will be made to EcosystemImpact, which will be responsible for implementing and managing the conservation activities agreed through a participatory, village level planning process. Such conservation activities are likely to include, for example: agreement on village level land-use plans; on-going data collection and monitoring of key species and their habitat; ranger patrols; law enforcement; conservation education; and, support to community level sustainable enterprises. Annual payments for conservation activities will continue after the debt is repaid.

The primary impact will be to increase the productivity of smallholder farms, resulting in: i) increased income from growth in yield per hectare (note that we expect a 400% increase in yield between old trees currently being harvested and new trees being planted), ii) increased savings from decreased expenses on insecticides and pesticides, and iii) diversification of income streams to increase income and resilience.

Positive environmental impacts, which in turn benefit the broader local and global communities, include: i) avoided use of chemicals from insecticides and pesticides, ii) ecosystem regeneration from enhancement of agricultural areas, and iii) avoided ecosystem depletion through participatory sustainable land-use planning in the landscape that achieves community support through the integrated economic-environmental nature of the proposed plan, and a sustainable source of finance for ongoing conservation activities to preserve critical biodiversity in the landscape.

Gender equality is also key objective of the Fund, for example: i) 4/6 (66%) women are involved in the design, operation & management of the Fund, ii) āluān is setting an example of women leadership in entrepreneurship in a world (Aceh, Sumatra Indonesia) where men dominate business, and iii) gender-focused job creation to provide income security for women and their families.

There is very little finance flowing into replenishing Indonesia’s agricultural assets other than large-scale oil palm plantations. The environment and more sustainable and biodiverse crops are being neglected, as are smallholder farmers.

Our approach addresses this problem by: i) ensuring the preservation of natural capital is prioritised alongside investment returns, ii) aligning incentives through the benefit-sharing model, and iii) distributing risk more equitably between smallholders and investors.

These integrated benefits are made possible through our unique partnership model: we have a commercial business operating within the local supply-chain, coupled with a dedicated conservation foundation, and mutually beneficial partnerships with farmers.

Our approach addresses the shortfalls of other attempts to finance replanting programs by: i) ensuring the preservation of natural capital is prioritised alongside the social and financial aspects of the model, ii) being operated by an active off-taker in the supply chain, iii) aligning incentives through the benefit-sharing model, which is more widely accepted and can be better enforced with smallholders in Indonesia than traditional micro-finance loans, for example, and iv) distributing risk more equitably, with āluān and the investors, who are better positioned to cope with potential downturns, bearing more risk than the smallholders.

These integrated benefits would not be possible if not for the unique partnership model that our approach is taking where we have a financing vehicle established in Singapore where the legal system is robust and helps build investor confidence, a commercial in-country business (āluān) operating within the local supply-chain and political-economy context and is thus well positioned to roll-out project implementation and act as off-taker, coupled with a dedicated conservation foundation (EcosystemImpact), and direct, mutually beneficial partnerships with local farmers. Our hypothesis is that once the symbiotic benefits of this approach are proven-out and investor confidence grows, the approach can be scaled and replicated.

Key to the success of our solution will be to build an interactive, database to track and showcase data - including, for example:

• mapping agricultural areas that we will focus on for productivity improvements. 
• ensuring these mapped areas are linked to detailed information around ownership, soil quality, climate conditions, replanting and extension services plans.
• traceability systems to enable tracking of what produce from where is used for what batch production. 
• the database will also need to include details on priority conservation areas, the management plans for these areas, details on the monitoring of the biodiversity in these areas etc. 

We understand that the technology to fulfil these needs already exists, however, we need support to tailor it more specifically to our needs, and set it up in partnership with our staff so it be used to its full potential.   

Here are a few of the examples of the current technology available that is available to help meet our requirements listed above:

• https://www.cropin.com/
• https://coolfarmtool.org/
• https://medium.com/perlin-network/perlin-clarify-blockchain-traceability-launched-copenhagen-fashion-summit-a2be5a60066f
• https://app.followourfibre.com/
• https://earthengine.google.com/

Our Theory of Change is that given the political economy of Indonesia (where environmental destruction is closely tied to entrenched politics, finance and business), the protection of nature requires much more than siloed conservation programs. Our model is job creation and economic development via green business alongside traditional conservation under an integrated landscape approach that provides for the needs of people and nature. 

We are currently working with 600 smallholder farming households.

When we launch the initial phase of the replanting Fund on 1,000ha then we will be working directly with approximately 1,400 farming households.

On the island where we currently based - Simeulue Island - there is between 3,000-5,000ha of degraded land and old coconut plantations that need to be replanted. We hope to expand into these areas over the next three years, thus increasing the number of farming households we work directly with to 3,000 - 4,600.

Within five years we want to take our replanting model to mainland Aceh, where there is an estimated 10,000ha of degraded land and old coconut plantations that need to be replanted, thus increasing the number of farming households we work directly with to 11,000 - 12,600. 

We want to continue to refine the business model for the replanting Fund so that it is better positioned to raise the necessary investment finance to grow. This will entail, for example: 

• Participatory design of conservation friendly coconut replanting and intercropping program: 1) Participatory village-level land-use planning, and socioeconomic assessments 2) Participatory land/resource rights assessment, 3) Set out a detailed replanting & intercropping plan, including design agricultural extension plan / farmer field schools, and seek agreement on investment terms with land owners, and 4) Design plans for the management of the designated conservation areas.
• Establish the interactive database to capture all of this information and ensure we are well positioned to run the program professionally, efficiently and transparently going forward. 
• Linking buyers directly to this globally important landscape through interactive map / visual technology; story telling; impact analysis.
• Fine tune the financial modelling work to showcase the financial viability of the investment: 1) Structure the investment vehicle, 2) Structure to maximise impact, especially ensuring ongoing finance streams to EcosystemImpact’s work and, 3) Selling the vehicle to investors.

We have two key constraints at present:

1. Funding that would help cover the immediate goals outlined above so we are then in a strong position to raise the finance needed for the Fund.
2. Technical assistance around some of the immediate goals listed above, particularly: legal advice, GIS assistance, video and marketing assistance, socio-economic baseline assessment assistance, and an technologist to help pull together the integrated database. For the most part we have a good network of people to provide this assistance if we had the funding available to pay them, although a particular gap is an expert to work on the integrated database with us. 

Continue to fundraise and network around our vision wherever possible!

Full-time staff 

• Jane Dunlop
• Irna Susrianti

Part-time staff 

• Dr Luke Swainson
• Robert Kraybill 
• Maria Gonzalez 
• Farwiza Farhan 

Jane Dunlop has worked globally at the intersection of conservation, sustainability & sustainable finance for 15 years with a focus on land rights, justice, indigenous peoples, sustainable development and conservation.

Irna Susrianti has worked with government agencies and grassroots organizations in Aceh in order to understand and support the needs of marginalized groups, namely women and people with disabilities.

Luke Swainson Co-Founded āluān, EcosystemImpact, and Mahi-Mahi resort to deliver sustainable impact through an integrated landscape approach on Simeulue Island. Luke also leads Root Capital’s investing work in Indonesia, and has built a portfolio of $4M with 8 clients over the last 5 years. Luke’s PhD thesis focused on a political economy analysis of why Aceh’s ‘attempted’ transition to a green economy was unsuccessful.

Robert Kraybill is a recognized leader in the global impact investing space. He spent nearly 20 years in the traditional capital markets as an advisor and investor, and now leads all of IIX’s portfolio management activities.

Maria Gonzalez has direct experience in equity and debt financing for impact enterprises. She has supported the deployment of the IIX Growth Fund and provided technical assistance and financial support to social enterprises in South and Southeast Asia.

Farwiza Farhan is the chairperson of HAkA, a grassroots organisation in Aceh that focus on the conservation, protection and restoration of the Leuser Ecosystem. She focuses on increasing the meaningful access and involvement of local communities in the development of policy pertaining to their environment and livelihood.

• Lush handmade cosmetics (UK), https://uk.lush.com/, foundational buyer for āluān. Provided $26,000 grant for coconut replanting pilot.
• Genesis Charitable Trust, https://www.giml.co.uk/genesis... aritable-trust, provided $26,000 finance to pilot intercropping & byproducts pilot.
• Local government (District Head office; economic development & planning, agriculture/plantations, environment), āluān has strong government relationships at a District level and Provincial level, which is critical for the success of this initiative.
• Environmental / Conservation organisations we have received grant funding from (EcosystemImpact):
  • Turtle Fund, Pacsafe, https://pacsafe.com/pages/turt... nd European Association of Zoos & Aquaria (EAZA), https://www.eaza.net/
  • ZGAP, https://www.zgap.de/
  • WildlifeReservesSingapore (Singapore Zoo), https://www.wrs.com.sg/en.html
  • Marlow Bird Park, https://www.rostock.de/en/service.html?marlow-bird-park-409
• C4D, https://www.c4dpartners.com/, Has provided $200,000 in debt finance to āluān.
• Dutch Fund for Climate and Development, https://thedfcd.com/, early-stage discussions and sharing of information.
• SYSTEMIQ, https://www.systemiq.earth/, have expressed interest to provide ongoing technical support.

The Fund will finance an integrated coconut tree replanting, intercropping and conservation initiative that builds on a pilot program undertaken by āluān in 2019-2020.

The initial project targets the replanting of 1,000 hectares of unproductive and degraded land in Simeulue owned by smallholders. The Fund will generate revenue by entering into benefit-sharing contracts with the smallholders where it will be entitled to 40% of all produce from the new coconut plantations and intercropping. In return, the Fund will provide all upfront capital required to establish the plantations.

āluān will provide management oversight of the Fund for which it will receive a management fee of US$30,000 per annum (with an inflation escalator) during the first 3 years of project establishment, and US$20,000 per annum from then forward. āluān will also receive a 50% share of excess cash flow from the Fund. This will compensate āluān’s management team for playing the lead role in the implementation of all activities associated with the replanting project, including as promoters, staffing and managing the project, coordinating with and directing the work of EcosystemImpact, acting as the main off-taker where possible or otherwise linking with alternative market opportunities, and identifying expansion opportunities.

The Fund will also pay 3% annual interest on the original amount of debt it was financed with for conservation activities. These payments will be made to EcosystemImpact, who will be responsible for implementing and managing the conservation activities agreed through the participatory village level land-use plans.

Our two key constraints at the moment are funding and technical assistance. We hope that through Solve's network of people and organisations we can better tackle these constraints, namely:

• through the immediate grant support provided by Solve winners that can help cover our expenses.
• technical assistance and networking to refine the Fund structure and secure investment finance. 
• technical assistance to build an interactive, database to track and showcase data associated with the integrated replanting and conservation program. 

We are seeking a partnership that can bring our work and ambitions from a remote island in western Sumatra to the attention of talented individuals and organisations throughout the globe so that we are in a much stronger position to achieve our goals. This could be through an online collaboration where we are provided with technical assistance and networking support to, or even better we would identify a committed individual(s) that wanted to work with us onsite to help address our current constraints, especially in regards to the development and implementation of the interactive, integrated database.  

We have not yet looked at this in detail sorry 

While the proposed Fund is centered on the replanting and intercropping of coconut palm trees in Aceh, Indonesia, the structure can be replicated with relative ease across different geographic areas (e.g., other regions of Indonesia, the Philippines, Thailand, etc.) as well as across different agricultural commodities (cocoa, coffee, rubber, sustainable smallholder palm oil, etc.)

The case for replication within Indonesia is particularly strong. Indonesia as a whole represents the world’s largest coconut crop, covering 3.8 million hectares, much of which is approaching the end of its useful life.

The Fund will serve as a case study to prove how blended finance can be used to de-risk long-term investments and boost return to attract private capital to invest in projects that create and preserve natural capital. Another key learning will be around the use of intercropping for the generation of revenues in the short term, which allows for debt repayment to begin early in the investment cycle, after only a short grace period. A third learning will be on the revenue-sharing model, which ensures that the land-owners, smallholders, project managers and conservation workers are aligned in terms of revenue and impact generation. 

Our hypothesis is that once the symbiotic benefits of this approach are proven-out and investor confidence grows, the approach can be scaled and replicated. 

The investment funds provided through the Future Planet Capital Prize will be used to undertake the activities needed to get the Fund investment ready, including:

• Participatory design of conservation friendly replanting and intercropping program: This integrated, and participatory land-use planning process is critical to the overall success of the replanting and intercropping program as it: a) outlines exactly were the land for replanting is, ensures that rights over this land are clean and clear, and there are signed agreements in place as to how it will be managed and the benefits shared, thus, turning the replanting program into a concrete investment opportunity, and b) it leverages the expected economic benefits of the replanting and intercropping program to gain community agreement on best-practice management of critically important conservation areas.
• Interactive, integrated database: We need a database to capture and showcase the range of data critical to replanting and conservation work, and we support to tailor such a database more specifically to our needs, and set it up in partnership with our staff so it be used to its full potential. 
• Market access: Before we can raise investment finance and have the confidence to launch into a large-scale replanting and & intercropping program, we must have confidence that there is adequate demand for the new supply we are projecting, and at prices that make the financial model viable. In-depth information on these demand and pricing issues will ultimately inform the replanting & intercropping plan – for example, which varieties of products to plant, and how quickly to scale up production volumes. More direct communication and relationship building with buyers is required to gain better insights on these market issues, and storytelling tools, such as a marketing orientated video and detailed impact analysis, will better enable these relationships to be progressed.
• Scalable financing vehicle: More work and expert guidance is needed so that the vehicle is best positioned to secure investment finance, including: refining the model, ensure it is well structured legally, and to deliver impact alongside financial returns. Once the vehicle is finalised, it then needs to be well presented, and efforts made to court different types of investors (grant, debt, equity), and close Round 1 funding.