Annual Report 2023 IV

Whether natural resources are a blessing or a curse depends on how a country uses and manages them. The Common Fund for Commodities (CFC) is mandated to make use of a country’s commodities in ways that will bring income and prosperity for its people and the planet. CFC works to bring more income and productivity for the smallholders through a nexus between smallholders and the SMEs (small and medium enterprises) to localize the development through alleviation of poverty. In doing so, we try to provide priority to countries where poverty is widespread as are in LDCs (Least Developed Countries) and Landlocked Developing Countries (LLDCs).

CFC implements projects in partnership with governments, international organisations, and other development partners from both private and public sectors. These partnerships support commodity development measures and actions that promote and accelerate the development, expansion, and modernisation of commodity sectors so that elements of commodity dependence can be addressed.

A country is considered to be commodity dependent when more than 60 per cent of its total merchandise exports are composed of commodities. Given that commodity dependence can have a negative impact on a country’s economic development, it is important to monitor the evolution of such dependence in countries throughout the world.

The CFC supports innovative commodity development financial interventions aimed at improving the structural conditions in markets and at enhancing the long-term competitiveness and prospects of particular commodities inter alia including:

• increasing earnings to sustain real incomes;

• enhancing sustainability in commodity value chain activities;

• promoting value addition and enhance the competitive position of marginalized participants in the value chain;

• contributing to enhancing food security; and

• promoting production, productivity, trade, quality, transfer and use of technology and diversification in the commodity sector.

The CFC exercises due attention to the fact that agriculture is a place-based activity and the strategies that reflects the local innovation clusters need to be acknowledged and factored in. As price takers, smallholders remain vulnerable to the fluctuation of the market and thereby making our job even harder.

Commitments, financing and disbursements

The operational guidelines of the Common Fund were originally adopted under the Agreement Establishing the Common Fund for Commodities and entered into force in 1989. They remained in force until 31st December 2012. Under these operational guidelines, the Fund approved financing for 217 Regular projects, plus a further 150 Fast Track projects, totalling 367 projects, with an overall cost of USD 606.5 million. The Fund financed USD 247.4 million of this total (excluding cancelled projects)^*. CFC financing accounts for about 40% of the overall project cost. The balance of the project costs was co-financed by other institutions and by counterpart contributions, either in cash and/or in kind (USD 359 million or about 60%), provided by the Project Executing Agencies, collaborating institutions, governments, or International Commodity Bodies (ICBs). Financing of projects by the Common Fund under the original operational guidelines comprises USD 233.4 million in grants (96%) and USD 13.9 million (4%) in loans^*.

Recognizing the new challenges and opportunities facing the CFC Member Countries, led to adoption of the reform package of the CFC, including updated operational guidelines which became effective on 1 January 2013. Under the new operational guidelines, the Fund currently has 73 Regular projects plus a further 26 Fast Track projects, (a total of 99 projects) at various stages of preparation and implementation, with an overall cost of USD 421.4 million. In addition, the Fund is participating in 9 Investment Funds with Equity and partnership financing, which together have the total assets under management of USD 723 million. Of the total project cost of USD 421.4 million, CFC contribution totals USD 83 million or about 20%^*. The balance was paid as co-financing and/or counterpart contribution by the proponents under the new operational guidelines. The Fund financing comprise of USD 79.1 million in loans/equity etc. (95%) and USD 3.9 million in grants (5%)¹.

According to the Fund’s audited statements, the direct project related disbursements in 2023 (unaudited) stood at USD 0.17 million as grant and USD 9.92 million as loan/equity etc. (for both Capital Account and Operations Account)². Special efforts are in place to streamline the components of the Agreements between the Fund and the Recipient of resources to reduce the delays between the approval of project and commencement of actual implementation on the ground and more of these efforts will be in place in 2023.

The CFC has funded projects addressing over 70 different commodity products, in partnership with investment funds and equity investors. The commodities funded include abaca, arachis, bamboo and rattan, bananas, cashews, cassava, castor seeds, citrus, cocoa, coconuts, coffee, coir, copper, cotton, fish, fonio, groundnuts, gum arabic, hides and skins, jute, lead, maize, meat and livestock, medicinal herbs and plants, olives, palm oil, paprika, potatoes, rice, natural rubber, shea nuts, sisal, sorghum and millet, soybean, cane sugar, tea, timber, tropical fruits, spices, and zinc. Most of these are produced almost entirely in developing countries and in partnership with investment funds, among which are the Africa Agriculture & Trade Investment Fund (AATIF), African Agriculture SME Fund, EcoEnterprises Fund, Moringa Agroforestry Fund, SME Impact Fund, and agRIF Cooperatief U.A.

CFC-supported Regular Projects by Type

The types of projects have been reclassified following the reform of the CFC in 2014, reflecting a greater emphasis on public-private sector cooperation. The focus is on the commodity value chain, and to monitor its integration into various related activities, the CFC classifies its funded projects into the following categories. The table below presents the classification of 66 regular projects at various stages of implementation or in the preparatory phase.

As of 31 December 2023, a total of 223 regular projects had been financially closed. The financial resources recovered from completed CFC grants/loans projects are returned to the pool of Second Account resources or the First Account Net Earning Initiative once the project account is closed and are available to finance new projects.

Participation of Private Sector: Private companies provide social, technical, commercial, and financial contributions to projects funded by the CFC, driving greater innovation. Furthermore, to promote and assess the developmental impact, replicability, and sustainability of project results, both within and across countries, relevant private companies are required to document, report, and communicate their findings. This includes both operational and financial performance, as well as the impacts achieved. In the past, over 150 private firms have shared the results of their CFC projects at dissemination workshops, whilst many other operating companies are actively involved in recording, establishing, and maintaining consistent and systematic reporting of impact in projects or interventions that receive CFC financial support. The private sector's interest in technical cooperation with CFC projects is growing daily. Proposals from the private sector seeking finance for specific commodity development activitiese also on the rise.

CFC works with the UN agencies: As an organization born out of the UNCTAD (UN Trade and Development) process, CFC always remain engaged with UNCTAD, the United Nations Industrial Development Organization (UNIDO), Food and Agricultural Organization (FAO), the UN High Representative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States (UN-OHRLLS) Office of Special Adviser on Africa (OSAA), UN Department of Economic and Social Affairs (UN DESA) etc. Our aim is to identify and implement innovative measures to enable the sustainable contribution of the commodity sector to economic development, including ways to reduce vulnerability to volatility in commodity prices, as well as to enhance activities in developing countries to improve access to markets.

CFC for innovation: With our base in the innovation rich the Netherlands, It is natural that CFC will endeavour to act as a bridge between the developing and the developed world to transfer technology and innovations. It is expected that a good number of portfolios are enriched by Dutch/European entrepreneurs and businesses, which we wish to present as an example of win-win enterprises in our quest to create agripreneurs in the developing world. Countries in the developing world face significant technological challenges, but they also have increased access to a larger pool of scientific and technical knowledge than was previously available. CFC endeavours to take advantage of this innovation and scientific knowledge as it explores local innovations as well as indigenous knowledge.

Overall, the state of commodity dependence remains as sticky, if not more, as it was years ago. As per latest UNCTAD report on commodity dependency 2023, between 2019 and 2021, only 12% of advanced economies were on the list, compared to a staggering 74% of the world's least developed countries. A total of twenty-nine out of the thirty-two nations classified as having low human development in 2021 were commodity dependent, according to the UN's Human Development Index. This gloomy update not only makes a strong case for the continuity of the CFC, it also makes a much stronger case for significant enlargement of CFC’s impact and reach.

For the last decade, the CFC Technical Assistance (TA) Facility team stands at the forefront of collaboration with impact investment funds. While our assistance predominantly targets the agricultural commodities sector, we strive to pivot our interventions by providing tailored capacity development and advisory services for investees, ensuring that commodities work for all. By combining financial support with technical expertise, CFC’s development efforts are designed to achieve greater impact and contribute to lasting positive change in developing countries, ultimately alleviating poverty and hunger.

The expertise of CFC’s TA Facility includes tropical agriculture, agroforestry, project management, finance, Environmental, Social, and Governance (ESG) and impact assessment. The multidisciplinary team works in tandem with CFC’s financial and administrative colleagues to ensure seamless coordination and implementation of services. Harnessing this collective expertise, the TAF team is committed to enhancing the operational capacity and profitability of targeted agribusinesses and financial institutions while enhancing the businesses’ contributions to improved livelihoods of the smallholder farmers in their supplying networks.

At present, the CFC provides TA Facility management services for the Africa Agriculture and Trade Investment Fund (AATIF)1 and for the Agroforestry Technical Assistance Facility of the Moringa Fund.2 By the end of 2023, CFC’s dedicated TA Facility team has developed 136 TA projects with an aggregate approved budget reaching Euro 9.7 million. These initiatives have provided indispensable support to 46 agribusinesses and financial institutions, fostering growth and resilience across diverse agricultural value chains spanning 23 countries throughout Africa and Latin America.

Additionally, the CFC TA Facility is spearheading the launch of a new EUR 10m TA Facility for the Agricultural Commodity Transformation (ACT) Fund3, a new impact investment fund developed by CFC and presently in inception phase

Case study AATIF – Breaking Ground: Pioneering Rainforest Alliance certified cashew in Mozambique

The cashew sector holds a vital role in Mozambique's agricultural landscape, serving as a significant source of income for many smallholder farmers. With its ideal climate and fertile soils, Mozambique boasts favourable conditions for cashew cultivation. Smallholder farmers, often operating on modest plots of land, contribute substantially to the country's cashew production. However, challenges such as limited access to resources, fluctuating market prices, and vulnerability to climate change persist, affecting both the livelihoods of farmers and the overall sustainability of the sector. Despite these obstacles, initiatives aimed at enhancing productivity, improving market access, and promoting sustainable practices offer promising pathways for empowering smallholder farmers and fostering growth within Mozambique's cashew sector.

In 2023, the AATIF TA Facility, managed by the CFC, embarked on a mission to bolster the cashew sector's sustainability by supporting Export Trading Group (ETG), an AATIF investee, in executing a groundbreaking climatesmart cashew project aimed at transforming sourcing models within the sector while catalysing broader social, environmental, and economic improvements. By implementing advanced farm management systems, introducing resilient cashew varieties, afforesting, exploring carbon sequestration methods, experimenting with biochar application, and imparting extensive training in agricultural best practices, the project seeks to elevate cashew tree productivity and uplift farmer incomes significantly.

A pivotal outcome of this endeavour has been the introduction of the world's inaugural Rainforest Alliance certified cashew, marking a milestone in sustainable agriculture. This pioneering effort enhances traceability in the cashew supply chain and extends its benefits to approximately 5,000 smallholder farmers across Mozambique. Emphasising the livelihoods and wellbeing of smallholder producers within the cashew value chain, the Rainforest Alliance certification process offers robust mechanisms for evaluating and tackling issues such as child labour, forced labour, inadequatworking conditions, low wages, gender disparities, and encroachment upon indigenous land rights.

Moreover, the incorporation of climate-smart practices into the agricultural training offered through the certification program equips farmers to enhance their resilience against droughts, floods, and other climate change-induced environmental impacts. This approach underscores the interconnectedness between ecosystem health and the economic well-being of rural communities. Elevating sustainable livelihood prospects for smallholder farmers through certification, training and improved extension services can bring quantifiable financial benefits through premiums and increased yields while safeguarding the surrounding natural environment.

Collaboratively set up with the AATIF TA Facility, this project received crucial support through the provision of technical expertise and advisory services, facilitated by an in-house team and a network of seasoned consultants. The involvement of the AATIF TA Facility underscores a steadfast commitment to transparent and scalable sustainability standards, with a core focus on linking farmers to retail and consumer markets while nurturing positive environmental outcomes.

Launched in 2016, the Agroforestry Technical Assistance Facility (ATAF) has been the instrument from which the CFC as ATAF Manager, in close collaboration with the Moringa Fund, has developed and implemented 20 technical assistance projects aiming to support the Moringa investee companies to amplify its positive environmental and social influence in the communities in which they operate. Impact assessments relating to three of the investments have also been carried out by the ATAF team, seeking to understand how the financing and technical support have been useful and fit for purpose. ATAF has been supported by donors such as the French Facility for Global Environment (FFEM), the French investment and support fund for businesses in Africa (FISEA), CFC, and the Fund for African Private Sector Assistance of the African Development Bank Group (FAPA/AfDB). In addition to the grant funding, the investee companies have directly co-contributed to the costs of the ATAF projects as well.

The core of ATAF has been to focus its TA support on the design, roll-out and scale up of viable agroforestry systems that include and further support smallholder farmers, for instance through capacity development measures and training. To name a few, ATAF projects have assisted the various investees to:

• Rehabilitate coffee orchards and integrating smallholder farmers into an agroforestry cluster.

• Explore how to valorise coconut and cashew residues by transforming the waste into viable end-uses (such as for manufacturing purposes or for energy generation), thus enhancing the processing companies’ sustainability endeavours.

• Support the organic conversion of cashew farmers and achieve industry best practice food safety certification of its end-product.

• Access tailored strategies for pineapple product diversification designed to also be of benefit to the supplying farmers, ultimately aiming to offer hands-on support to the investee for potential new product development while at the same time reducing farmer vulnerability by providing the farmers with reliable options for crop and income diversification coupled with a reliable off-taker of their new produce.

• Identify how to reduce plastic waste in packaging solutions by proposing viable packaging alternatives adapted to the investee’s existing packaging facility, thus requiring minimal investment by the investee to make the swap.

Through the technical and advisory support delivered through the ATAF projects, the CFC TAF team has supported innovative solutions and endeavours in numerous value chains across several countries in Latin America and Sub-Saharan Africa. In the coming years, the CFC will continue to manage and implement the remaining operational ATAF projects, focussing on exploring sustainable ways to support West African vegetable oil production through improving traceability in the supply chain and increasing crop quality, ultimately fostering sustainable growth.

With implementation of such grassroot initiatives, CFC’s TAF empowers local stakeholders to take ownership of development initiatives, implement projects effectively, and sustain progress over the long term.

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Annual Report 2023 IV

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