Restoring Degraded Coffee Landscapes and Scaling up Sustainable Production in South- West Ethiopia Feasibility study for the development of the business case for scaling up ACKNOWLEDGEMENT This study is a product of the project “Meeting Ethiopia’s Bonn Challenge Target: Restoring de- graded coffee landscapes”. The project is financed by the German International Climate Initia- tive (IKI). The German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) supports this initiative on the basis of a decision adopted by the German Bundes- tag. For more information about IKI visit www.international-climate-initiative.com. The project is co-funded by the Fondazione Lavazza. Author UNIQUE forestry and land use Date January 2021 CONTENT Tables ............................................................................................................................................ iii Figures ........................................................................................................................................... iii Acronyms ....................................................................................................................................... iv Summary ....................................................................................................................................... 1 1 Introduction ............................................................................................................................. 5 2 Context ..................................................................................................................................... 6 2.1 Coffee production and trade in Illubabor......................................................................... 6 2.2 Good agricultural practices for sustainable coffee production........................................ 9 2.3 Shade coffee systems ..................................................................................................... 10 3 Financial viability of smallholder coffee farms ...................................................................... 12 3.1 Results ............................................................................................................................ 13 3.2 Sensitivity analysis .......................................................................................................... 14 3.3 Financing farm level investments with credits ............................................................... 18 4 Shade tree management and monitoring .............................................................................. 20 4.1 Management of shade trees in semi-forest coffee systems .......................................... 20 4.2 Monitoring shade trees on coffee farms ........................................................................ 22 4.3 Carbon stock accounting and benefit sharing ................................................................ 25 5 Scaling up the project ............................................................................................................ 27 5.1 Provision of extension services ...................................................................................... 27 5.2 Financing investments on coffee farms and in processing capacity .............................. 28 5.3 Incentives for sustainable management ........................................................................ 33 5.4 Proposed organizational structure for upscaling ........................................................... 34 5.5 Monitoring system ......................................................................................................... 36 5.6 Project duration and long-term sustainability ............................................................... 39 6 Risks and risk mitigation strategies ........................................................................................ 40 6.1 Internal risks ................................................................................................................... 40 6.2 External risks .................................................................................................................. 43 6.3 Safeguards ...................................................................................................................... 46 7 Conclusions and next steps .................................................................................................... 49 7.1 Investments in coffee production .................................................................................. 49 7.2 Financing investments .................................................................................................... 50 7.3 Organizational set-up ..................................................................................................... 50 UNIQUE | Scaling up sustainable coffee production in south-west Ethiopia i 7.4 Monitoring ...................................................................................................................... 51 7.5 Holistic approach to sustainable coffee landscapes ...................................................... 51 7.6 Risks and risk mitigation ................................................................................................. 52 Literature ..................................................................................................................................... 53 Annexes ....................................................................................................................................... 56 Annex 1: Land use and coffee production statistics for Illubabor ......................................... 56 Annex 2: Changing suitability for coffee growing areas with climate change ....................... 59 Annex 3: Shade tree management......................................................................................... 60 Annex 4: Monitoring avoided degradation on semi-forest coffee farms - challenges and solutions ................................................................................................................................. 64 Annex 5: Potential and constraints for development of forest carbon projects in Oromia .. 65 Annex 6: Monitoring shade trees by farmers and extension staff ........................................ 67 Annex 7: Input values for the assessment of coffee farm economics ................................... 69 Annex 8: Farm level economics including household labor cost ........................................... 73 Annex 9: Ongoing coffee projects in Illubabor ...................................................................... 74 Annex 10: Service providers for monitoring and data management..................................... 75 Annex 11: Commercial lending to businesses and farmers ................................................... 76 Annex 12: Financing investments on coffee farms and in processing capacity ..................... 77 UNIQUE | Scaling up sustainable coffee production in south-west Ethiopia ii TABLES Table 1: Recommended good agricultural practices................................................................... 10 Table 2: Financial cost and benefit of a smallholder coffee farm (1ha) ...................................... 14 Table 3: Benefits of shade trees in semi-forest coffee systems.................................................. 21 Table 4: Investment needs .......................................................................................................... 29 Table 5: Lending and on-lending conditions ............................................................................... 32 Table 6: Monitoring components ................................................................................................ 38 Table 7: Project implementation in three phases ....................................................................... 39 Table 8: Project internal risks and mitigation strategies ............................................................. 40 Table 9: External risk factors and mitigation strategies .............................................................. 44 FIGURES Figure 1: Coffee trade flows in Ethiopia ........................................................................................ 7 Figure 2: Development of yield in the baseline, rejuvenation, and replacement scenarios ...... 12 Figure 3: Annual cashflow for coffee farms before and after rejuvenation/replacement ......... 13 Figure 4: Yield development after rejuvenation/replacement with/without adoption of GAP . 15 Figure 5: Cashflow for smallholder coffee farms without adoption of GAP ............................... 16 Figure 6: Average annual profit with changing product price .................................................... 17 Figure 7: Average annual profit with increasing labor cost ........................................................ 17 Figure 8: Annual cashflow of coffee farms with small loans for rejuvenation or replacement .. 18 Figure 8: Annual cashflow of coffee farms with medium loans for investments and adoption of GAP ......................................................................................................................... 19 Figure 10: Stratification parameters for the survey of semi-forest coffee farms ....................... 23 Figure 11: Monitoring shade trees on semi-forest coffee farms ................................................ 24 Figure 12: Carbon storage in the above and