Future-proofing coffee through agroforestry and innovative finance

Coffee is a commodity that requires very specific growing conditions. To grow coffee well, farmers require a specific temperature, light and humidity, the optimum levels of which are found in the tropics, in the so-called coffee belt. For example, the higher value Arabica species, which accounts for up to 70% of global production, can only tolerate mean annual temperatures of up to 24C. Beyond that, the fruit ripens too fast, and the plants get damaged.

The climate crisis is disrupting coffee production in all corners of the globe. Recent analysis by SEI suggests climate change could reduce global Arabica coffee production by 45.2%, and global Robusta bean production by 23.5%. Rising average temperatures and more extreme periods of rainfall and drought are already making things tough – and it’s going to get tougher. By the middle of this century, places that have been cultivating coffee for decades may not have suitable conditions. In fact, evidence shows rising temperatures could reduce the area suitable for growing coffee by up to 50% by 2050.

Changing temperatures also lead to greater disease risks. For example, in 2012-13, more than half of the coffee crops across Honduras, Costa Rica and Guatemala were wiped out by a fungus, with 350,000 people losing their livelihoods. Investigation at the time concluded that the crisis was clearly fuelled by the rising temperatures that help propagate the fungus.

The coffee industry is responding, by exploring the DNA of coffee plants to develop more resilient varieties that can withstand more extreme conditions. However, perhaps the best long-term answers for coffee producers battling against climate change lie in nature-based solutions. Such solutions are sustainable approaches that utilise natural processes and ecosystems to address various challenges, such as increasing carbon storage, promoting sustainable economic development and enhancing ecosystem resilience.

The practice of agroforestry is an example of such a nature-based solution, and is increasingly seen as a powerful way to build resilience, enhance productivity in coffee, and help to mitigate the effects of climate change on the industry. 

Agroforestry practices integrate trees into coffee farming systems, helping to foster a symbiotic relationship to enhance ecological, economic and social resilience. For example, agroforestry promotes biodiversity by intercropping coffee plants with shade trees and other complementary crops. The presence of diverse vegetation creates a balanced ecosystem that attracts beneficial insects and pollinators while deterring pests. Importantly, shade trees offer a natural shield against extreme weather events associated with climate change, reducing the risk of crop damage.

The trees sequester carbon in their wood, leaves and roots and in the soil. Acting as powerful carbon sinks, trees store carbon for extended periods, helping to offset the carbon footprint of coffee production. Storing an average of 8.4 tonnes of carbon per hectare per year, on a global scale, agroforestry could sequester 8bn tonnes of carbon a year. That’s the equivalent of 40% of the greenhouse gases emitted by the UK, Germany, France and Canada combined during the 2010s.

Coffee production can lead to soil degradation, especially with the use of synthetic fertilisers and pesticides. But agroforestry improves soil health and fertility, with the leaf litter from shade trees providing a natural mulch and improving the soil structure, which enhances water retention. Organic matter content can increase by as much as 20-40% in agroforestry compared to conventional monoculture systems, for example.

By intercropping coffee with various fruit and nut-bearing trees, farmers can supplement their earnings with additional produce too. This reduces the dependence on coffee as the sole source of income, which can be crucial in times of coffee price volatility or market fluctuations, providing a safety net.

Working with nature to build resilience for coffee farmers is at the heart of the work of Regeneration, a partnership between Palladium, a global implementer of development programs, and Systemiq, a climate advisory organisation. In east and west Africa, for example, Regeneration’s Rebuild Finance Facility offers interest-free working capital to aggregators and buyers of speciality coffee and cocoa to safeguard the incomes of forest-dependent communities.

Sustainable coffee and cocoa production methods are more labour intensive and costly for farmers than conventional methods. Farmers are rewarded when they sell their specialty coffee at the premium prices associated with their certified produce. However, with the high cost of finance and market access, buyers often can only afford a fraction of sustainably produced coffee. As a result, farmers who invest time and money into securing certification often end up having to sell their produce as conventional coffee or cocoa – without the price premium.  

The Rebuild facility’s returnable grants mechanism targets aggregators and buyers who specialise in sustainable coffee and cocoa beans to simultaneously secure farmer incomes, strengthen the grantee companies, and incentivise the production methods that protect forest landscapes.

Ethiopia has more than 17m hectares of forest, covering 15% of its total area. It is also home to the Kaffa region, which is regarded as the birthplace of Arabica coffee and hosts the most genetic varieties of the crop. Coffee is hugely important to the economy, accounting for 4-5% of GDP and 30% of export earnings. 

Despite its significance, coffee farmers struggle to capture coffee’s value. Ethiopian smallholders receive an estimated 60% of the export price, which is a lower share than in most other producing countries, such as Kenya (70%) or Brazil (90%).

Changes brought about by the climate crisis have contributed to lower crop yields, which adds further pressure to smallholder coffee farmer incomes. In Ethiopia, coffee trees have a biennial production cycle. But in the last decade, more farmers have reported they experience two bad years for every good year.

In 2021, the Rebuild facility provided a returnable grant to Original Food, a company that sources its coffee from participatory forest management cooperatives in the Kaffa region of Ethiopia. The working capital offered to Original Food secured the incomes of more than 5,900 farmers within the Kaffa cooperatives. Crucially, the grant helped to put 6,000 new hectares of land under continued or improved sustainable land use practices, including the introduction or maintenance of agroforestry. This is on top of the over 34,900 hectares of land already under forest protection in the Kaffa region.

Regeneration has a similar story to tell in Uganda. Here, the Rebuild facility has supported farmers supplying Kyagalanyi, the oldest and largest coffee exporter in the country, which exported 18% of Uganda’s coffee in 2019-20. Masaka is a key coffee producing area where 20-25% of Ugandan Robusta is grown. Here, providing farmers with a returnable grant is an effective way of bringing job security to smallholder farmers while transitioning towards more responsible and regenerative practices. 

The Masaka region has a relatively low above-ground biomass density compared to other areas of Uganda due to ongoing deforestation. Since 2011, the region has lost more than 1,000 hectares of tree cover per year. 

The returnable grant was used to buy coffee from the Masaka scheme which, with the support of Kyagalanyi, plans to seriously increase the adoption of agroforestry practices among smallholder farmers. By 2025, Kyagalanyi aims to have integrated agroforestry systems into 70% of its farms in the region, giving farmers training from agronomists on biodiversity preservation and the co-benefits of avoided deforestation and reforestation. 

As the examples from the Rebuild facility show, there are clear benefits for companies to source from projects that promote nature-positive, regenerative coffee supply chains. In a world facing increasing environmental challenges, the adoption of sustainable and resilient agricultural practices is crucial.

Agroforestry offers a promising pathway to build resilience in coffee production. By harnessing the power of biodiversity, mitigating climate change, enhancing soil health, diversifying income streams and fostering community engagement to deliver land restoration, more sustainable agricultural practices are paving the way for a sustainable future for coffee farming.