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Finance for sustainable farming in San Martin, Peru

  • San Martin has the highest rate of deforestation of any region in Peru.
  • The sustainable landscape initiative aims to work across seven key supply chains driving deforestation. It will also support conservation efforts and provide sustainable livelihoods for indigenous groups.
  • Farmers may be able to access loans through the scheme as early 2017.
San Martin is a region in northern Peru within the Amazon rainforest biome. Since 2013, the Unlocking Forest Finance (UFF) project has been working to build and implement a sustainable landscape finance project. The project will channel loans to farmers to drive change in seven key commodity chains.
Rio Huallaga near Tarapoto, San Martin. Credit: Paul Alexander.

Peru is an ideal place to start such an initiative. Since the turn of the millennium, almost 1.5 million hectares of Peru’s forest have been felled. Almost a quarter of this has happened in San Martin, the most of any province in the country.  Nonetheless, San Martin still has significant forest cover, making it an ideal target for this ground-breaking sustainable landscape finance project.

Enhancing agriculture and production

San Martin is the largest producer of rice and coffee in Peru, and one of the main producers of palm oil and cacao in the country. These crops have expanded to cover more land in recent years, gradually expanding into forest land. Building on an understanding these drivers of deforestation, the UFF project aims to support sustainable farming of several key products: rice, coffee, cocoa, palm oil, palm hearts, aquaculture and sacha inchi nuts.

Per-hectare productivity for these commodities can be improved. By using the land more efficiently and reducing environmental impact, the initiative aims to alleviate pressure on the forest. For example, coffee growers often cut swathes of forest for plantations. Over a few years they may degrade the land by overusing chemical fertilisers and pesticides, or lose their crops to the rust fungus. Instead of restoring the productivity of the land, these farmers often move on to another patch of forest and repeat the process.

The UFF project aims to show that more sustainable methods are both possible and profitable. The project will provide farmers with training to help them improve productivity and also use the land more sustainably, potentially reducing pressure on the forest and increasing profits. According to cash flow analysis, these supply chains may generate internal rates of return varying from 18% for expansion in cocoa to over 40% for rice, fish and palm oil.

Interventions in San Martin
Commodity Intervention Area (in hectares) Average yield BAU (Kg/ha/year) Average yield SEM (Kg/ha/year) Producers trained Jobs created Additional income per hectare/year (average), USD
Cocoa Increasing productivity 24,730 750 2,200 7,517 24,214 837
Expansion 8,059 - 2,200 5,133
Coffee Increasing productivity 6,493 840 2,240 1,283 18,553 754
Restoration 9,739 - 2,240 1,925
Palm oil Increasing productivity 14,382 13,000 22,000 1,298 2,124 364
Palm hearts Increasing productivity 709 4,200 stems 7,000 stems 121 401 324
Rice Increasing productivity 39,587 6,500 10,000 3,269 10,886 876
Sacha Inchi nuts Increasing productivity 352 700 2,000 356 454 987
Expansion 317 - 2,000 314
Tilapia (aquaculture) Increasing productivity 153 4,500 21,850 96 602 11,470
TOTAL 104,520 21,311 57,234

Protecting people and the environment

In addition to the productive supply chains, the project also includes plans to boost conservation. These interventions aim to reduce deforestation to zero in national protected areas by supplying additional resources for monitoring, planning and sustainable management.

There are also several indigenous groups living in San Martin. The plan aims to support 79 groups of indigenous Kechwa, Awajun and Shawi people to develop in a way which allows them to increase income, jobs and other benefits from the forest without compromising the natural environment they depend on.

Environmental and social safeguards will ensure that the funded projects achieve their ultimate aims, namely restore degraded land, conserve forests, improve rural livelihoods and reduce carbon emissions.

The UFF project is expected to lead to 19,000 hectares of avoided deforestation and a 2 million tonne reduction in carbon emissions by 2030, according to conservative estimates based on analysis of the transition targets. It is hoped that this can be scaled up and replicated to increase its impact.

There are also significant social benefits. Changing farming methods in the seven supply chains is expected to create around 14,000 new jobs and improve the technical capacity of 21,000 farmers. Producers can also expect higher incomes. For example, coffee plantations could double maximum productivity with improved farming techniques.

Blue-grey tanager. Copyright Sarah Murray.

Channelling investment

The project will need US$88 million of finance, according to preliminary estimates, provided in the form of loans to producer organisations over an implementation period of 10 years. This investment will cover 70% of the costs of the interventions, with farmers expected to pay the remaining 30% from savings.

Loans will help farmers increase productivity, increase social benefits such as jobs and income, and reduce negative environmental impacts. Peruvian state bank Agrobanco will initially supply loans to farmers, processors and producer association up to a total value of US$15 million, to help them improve and scale up production in a sustainable way. Ultimately the project aims to use a mix of public and private resources, with additional investors potentially boosting the total loans to US$88 million.

While the credit product is the main instrument supporting commodity chains, it is hoped that grants will fund other elements including conservation and projects to protect the rights of indigenous groups.

The San Martin initiative is explored in greater depth in a detailed report, available in both English and Spanish:

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