Carbon Credits Alone Cannot Fund Colombia’s Cacao Agroforestry Transition, CGIAR Research Finds

Bogotá: Carbon markets could support Colombia’s shift toward more sustainable cacao farming, but they are unlikely to provide enough money on their own to cover the difficult early years of the transition, according to new CGIAR research.

The study examined cacao agroforestry systems in Caquetá and César, two Colombian regions where farmers are being encouraged to combine cacao production with trees and other vegetation. Researchers found that these systems can be financially viable over the long term, but farmers may struggle to finance the initial years when expenses are high and agricultural income is reduced.

The Early Years Are the Biggest Financial Challenge

Agroforestry can bring multiple benefits, including cacao production, timber, carbon storage and environmental improvements. However, those benefits do not arrive at the same time.

According to the CGIAR analysis, farmers can experience income losses for roughly the first seven years of the transition. Cacao may produce no harvest during its first two years, while some of the larger financial returns from timber can take decades to materialize.

This creates a financing problem for small farmers. They must pay for planting, maintenance and other inputs today while waiting years for the major returns from their new production system.

Limited Access to Credit Adds Pressure

The research surveyed 927 cacao farmers across 28 municipalities in Caquetá and César. Approximately 70% of those surveyed did not have access to loans, despite having sought financing for new crops and agricultural inputs.

For farmers with limited savings or restricted access to formal finance, the initial costs can therefore become a major obstacle to adopting agroforestry.

The researchers argue that this affordability problem cannot be solved simply by promising future carbon revenues.

Carbon Credits Provide Only a Modest Contribution

Carbon credits can generate additional income when trees absorb and store carbon, but the research found that the potential revenue is relatively small compared with the costs farmers face during the transition.

In the more favourable Caquetá scenario, carbon credits increased the estimated net present value of an advanced cacao agroforestry system by approximately $180 per hectare over 25 years under the study’s assumptions. In César, transaction and other project costs meant the carbon-credit component actually reduced profitability by about $17.

The results demonstrate that carbon-market economics can vary significantly depending on local conditions.

Local Conditions Matter

Carbon revenue depends on several factors, including the types of trees planted, their carbon-sequestration capacity, carbon prices, project size and the expenses associated with registering, verifying and certifying carbon credits.

A model that works reasonably well in one region may therefore produce little or no financial benefit elsewhere.

The CGIAR research suggests that policymakers and project developers should avoid treating carbon credits as a guaranteed source of upfront financing.

Farmers Need Financing Before Carbon Revenue Arrives

The researchers say a broader financing package is needed to make cacao agroforestry more accessible to farmers.

Possible tools include establishment grants, targeted subsidies and affordable long-term loans. These mechanisms can help farmers cover the early costs of planting and maintaining agroforestry systems before cacao, timber and carbon-related revenues become significant.

Carbon credits could then serve as an additional source of income once the systems mature and the necessary verification requirements are met.

Post-Conflict Areas Face Additional Obstacles

The challenge is particularly complex in regions affected by Colombia’s history of conflict.

The CGIAR research points to issues including insecure land tenure, limited institutional presence and difficulties accessing formal credit in areas such as Caquetá and César. Farmers without legally recognized claims to land can face additional difficulties participating in long-term financing and carbon-market mechanisms.

These conditions can make it harder for farmers to commit to agricultural systems whose major economic returns may take many years to appear.

Colombia Tests Alternative Financing Models

One potential complementary mechanism is Colombia’s Obras por Impuestos, or Works for Taxes, framework. The system allows eligible companies to direct part of their tax obligations toward approved projects in conflict-affected municipalities.

A CGIAR-supported project in Caquetá has demonstrated how this mechanism can be used for environmental and rural-development purposes. A project valued at approximately $1.14 million over four years is designed to support 70 cacao-farming families through agroforestry, ecosystem protection and payments for environmental services.

Such approaches could help bridge the gap between the costs farmers face today and the environmental and economic benefits expected in the future.

Sustainable Cacao Still Has Long-Term Potential

The research does not reject carbon markets or cacao agroforestry. Instead, it highlights the importance of designing financing systems around the actual cash-flow realities of farmers.

The study found that all three agroforestry systems examined generated a positive net present value over 25 years in both regions. The problem is therefore less about whether the systems can eventually be profitable and more about whether farmers can afford to reach that point.

For Colombia, combining affordable finance, public support, private investment and carbon revenues could provide a more realistic pathway toward expanding sustainable cacao production while also delivering climate and environmental benefits.

Key Highlights:

• CGIAR research examined cacao agroforestry in Caquetá and César, Colombia.
• Farmers can face several years of reduced income during the transition.
• About 70% of surveyed farmers lacked access to loans despite seeking financing.
• Carbon credits alone were found insufficient to cover the financing gap.
• Carbon revenues vary according to local conditions and project costs.
• Grants, subsidies and affordable long-term credit could complement carbon finance.
• Sustainable cacao agroforestry can remain financially viable over the long term.