COCOA ORIGINS PROGRAM. Prospectus

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1 COCOA ORIGINS PROGRAM Prospectus February 2018

2 2 Contents Introduction 3 The concept of Cocoa Origins program 4 Goal, Objective & strategy of the program 4 Program structure 4 The application process 6 Criteria 8 The eligibility criteria for project applicants 8 Criteria for project proposal selection 10 Co funding principles & guidelines for reporting 12 The Program Governance 14 Annex A: Template for concept note 15 Annex B: Scenarios of possible projects 15 Annex C: Letter of Intention 15 Annex D: IDH IP Guidelines for Monitoring & Reporting 15 Quick overview of the 16

3 3 Introduction IDH the sustainable trade initiative and Equipoise have developed the program called Cocoa Origin Program. The supports the companies using relatively small volumes of cocoa to become involved in sustainability projects at the origins of their cocoa supply chain and contribute to the overall sustainability of cocoa products linked to the Dutch market. In 2010 the most important parties involved in the cocoa supply chain in the Netherlands signed a letter of intent, committing to 80% sustainable cocoa consumption in the Netherlands by 2020 and 100% by 2025 (the Letter of Intent - Annex C). Since the signing of this Letter of Intent, industry, NGO s governments, unions, business associations and others have been actively working on improving conditions for sustainable cocoa production. Several years later the distinction between small and large volume cocoa using companies is becoming clear: it appears to be easier for the larger users to transform the intent into real action. As they are by nature internationally active, they are in a good position to initiate activities contributing to sustainable production. The smaller cocoa users often don t source the cocoa directly in the production areas and are therefore not involved in sustainability in the cocoa origins. At their small scale it is much more risky to engage in origins. This limits their potential for direct contribution to sustainability goals. The full potential impact of Dutch players in the cocoa industry has not been reached. targets companies that have signed or will sign the Letter of Intent and that use small or medium volumes of cocoa. Although SMEs are the main target group for private partners, large enterprises, such as retailers, can also benefit from Cocoa Origins since they lack the capacity to invest in sustainable cocoa consumption because of the relatively small quantities of cocoa they use. The projects will be implemented in the cocoa origins. Traceability throughout the supply chain is necessary to demonstrate the link between the activities in the cocoa origins and the final product. This traceability might either be through identity preserved, full segregation (both are physical traceability procedures) or mass balance (administrative) procedures. Proposals can be submitted to the Program by any private party or other stakeholder active in the cocoa supply chain with linkage to the Dutch market. All proposals require a minimum level of private co-funding of 50%.

4 4 1.0 Goal, Objective & strategy of the program THE CONCEPT OF COCOA ORIGINS PROGRAM Goal The goal of Cocoa Origins program is to build on the Letter of Intent by supporting smaller cocoa users to live up to the commitment and bring sustainable cocoa products to the Dutch market for consumption. The program is based on publicprivate partnerships to establish stable commercial relations between cocoa producers and cocoa users and to improve sustainability at the farm and community level. Objective To increase sustainable cocoa production by encouraging the private sector to develop new cocoa supply chains or re-arrange / expand existing ones and to improve availability of sustainable cocoa products on the Dutch market. Strategy The strategy of the program to deliver on the above-mentioned objective is to support a variety of projects that will help the smaller chocolate users develop projects that have a positive (in-) direct impact upon the economic, environmental and social conditions of cocoa production and therefore on the sustainability level in the Dutch consumer market. The definition of sustainability should be linked as far as possible to the 10 elements for sustainable cocoa production of the Letter of Intent (Annex C). The will promote cooperation throughout the supply chain, contributing to closer and more stable, long-term trade relations. Additionally, the program seeks to limit the risks, by providing funding for initial investments in creating, re-arranging or expanding cocoa supply chains from the cocoa origin to the final cocoa product and/or for (accompanying) projects with impact on economic, social and environmental conditions for cocoa production. Program structure The will be a combination of a variety of projects with each project feeding into the overall program goal. On the program level, there will be 2 calls for proposals, one in February 2018 and one at the end of 2018 offering the opportunity for the submission of project proposals for the Cocoa Origin Program. The total amount available for project implementation is 1.9 Mio EUR. All projects under the Cocoa Origins program will end at the latest by end of December This call of proposal is addressed to the following audience: Project applicants that are directly involved in the supply chain, like: traders, processors, B2B manufacturers of semi-finished products such as couverture and industrial chocolate, B2C manufacturers of cocoa products (chocolate, cosmetics, ice creams, confectionery), bean to bar chocolate makers, craft chocolatiers, retail and others Project applicants that are indirectly involved in the supply chain, like: Industry associations, banks, NGO s, risk investors Core criteria for the eligibility for project applicants to the is the supply of cocoa products to the Dutch market.

5 5 Two categories of projects are in general eligible for Cocoa Origins: The first category contains projects aiming for innovation in the supply chain (relocation of production, shortening the supply chain, new supply chain). The second category are Field level Projects (FLP) with activities in the cocoa origin, including: investment in productivity and quality of the cocoa (e.g. training, GAP, post-harvest services), projects costs towards income diversification, gender equity, improved nutrition or other and other social factors projects related to mitigating environmental impact of cocoa production and other environmental factors Please note that a combination of the both categories is also possible (please see Annex B for examples of project scenarios).

6 6 2.0 The application process The selection of the projects will be done by the Project Review Committee (PRC) in a 2-step approach together with the Program Management team. Firstly, the project applicant will be assessed for the eligibility to receive funding from the program. The proposals will be assessed against project criteria (please see section below criteria for project proposal selection). Once selected, the Program Management team (IDH and Equipoise) will oversee the implementation and monitoring of the projects. The application process has a two-step approach: Step 1) Concept note phase: The project applicants develop a concept note with the provided template. Once finalized the concept note is submitted to the Project Review Committee for assessment and review. The submitted concept note will be assessed against the defined criteria in the concept note template on a points basis. The Program Management team can reach out to project applicants for some further clarifications if needed. Once the concept note is approved the applicant is invited to develop a proposal. The concept note phase expected to take no longer than 3 weeks to be completed. THE APPLICATION PROCESS The template for the concept note can be found in Annex A. Step 2) Full proposal phase: The project applicants are invited to develop a full proposal including a detailed budget, activity plan, objectives, intended results and criteria to measure the success of the project 9KPI s). Throughout this phase the Program Management team is available for support and clarification if needed. Once the full proposal has been submitted, it will be reviewed and assessed by the Project Review Committee against the defined partner eligibility and project proposal criteria in the section the eligibility criteria for project applicants. The strategic approach of each project will be shared also with the Program Advisory Committee to ensure that the projects are strongly aligned and contribute to the Program objectives. Once the project proposal is approved the applicants will be contracted as Implementing Partner (IP) by IDH. Contracts will be based on standard IDH templates. This step is expected to take no longer than 2 months to be completed.

7 7 Legal aspects Please see below a proposed timeline: CONCEPT NOTE PHASE By participating in this procedure, the participant declares to unconditionally agree to the contents of these guidelines and its annexes. Submission by project applicant: end March 2018 Feedback from Program Management Team: mid April 2018 FULL PROPOSAL PHASE IDH is not obliged in this procedure to conclude a contract with a participant. IDH reiterates its right to update, change, extend, postpone, withdraw or suspend the guidelines, the time schedule, or any decision with regard to the contract. No claim for compensation can be made towards IDH, its employers or third parties acting on their behalf, for example in the following cases: 1. not following up on a selection award decision; Submission by project applicant: 25. May 2018 CONTRACTING Approval by PRC: 07. June not concluding the contract; 3. suspension and/or postponement and/ or attachment of further conditions to the contract decision; or 4. suspension and/or cancellation of the procedure The documents provided by or on behalf of IDH will be handled with confidentiality. The participant will also impose a duty of confidentiality on any parties that it engages. Any breach of the duty of confidentiality by the participant or its engaged third parties will give IDH grounds for exclusion of the call for proposals, without requiring any prior written or verbal warning. IDH reserves the right to change all dates, and will inform participants in a timely manner of such changes. All information, documents and other requested or provided data submitted by the participant will be handled with due care and confidentiality by IDH. The provided information will after evaluation by IDH be filed as confidential. The provided information will not be returned to the participant.

8 8 3.0 The eligibility criteria for project applicants General requirements for project applicants: Project applicants shall be legal entities that are involved in the cocoa supply chain or that represent a group of legal entities that are involved in the supply chain. Project applicants may be an individual legal entity or a group of legal entities (coalitions). In case a project application is filed by a group of entities, one of them shall be the lead contact for the project management and shall be responsible and liable for ensuring that the group meets all obligations of the project. The project applicants need to show that they are directly or indirectly involved in a supply chain that serves the Dutch market. The project applicant is not required to be based in the Netherlands. The project applicant shall guarantee the absence of unacceptable activities or behaviour directly or indirectly linked to the project, included but not restricted to: Slavery, forced labour Child labour Deforestation Sexual harassment Unlawful activities or behaviour Bribery and corruption Fraud Should any of the above appear or occur or should there be any suspicions of the above before or during the implementation of the project, the Program Management team shall be entitled to terminate the project agreement without the risk of incurring liability for damages or compensation. CRITERIA

9 9 GROUNDS FOR EXCLUSION Applicants shall be excluded from participation in the call for proposals and if: they are bankrupt or being wound up, are having their affairs administered by the courts, have entered into an arrangement with creditors, have suspended business activities, are subject of proceedings concerning those matters, or are in any analogous situation arising from a similar procedure provided for in national legislation or regulations; they or persons having powers of representation, decision-making or control over them have been convicted of an offence concerning their professional conduct by a judgment which has the force of res judicata; they have been guilty of grave professional misconduct proven by any means which the IDH can justify; they have not fulfilled obligations relating to the payment of social security contributions or the payment of taxes in accordance with the legal provisions of the country in which they are established, or with those of the Netherlands or those of the country where the contract is to be performed; they or persons having powers of representation, decision making of control over them have been the subject of a judgment which has the force of res judicata for fraud, corruption, involvement in a criminal organization, money laundering or any other illegal activity, where such illegal activity is detrimental to the MFA s financial interests. Project applicants must confirm in writing that they are not in one of the situations as listed above.

10 10 Criteria for project proposal selection For the project proposal there are a range of criteria. Before assessing any proposal, every project partner has to meet the eligibility criteria for project applicants specified in section eligibility criteria for project applicants. Some core project criteria must be met for the proposal to enter into the project selection process of the Cocoa Origins Program. If the proposal does not meet these core criteria, it is excluded from the project selection process. These core criteria are: Project applicant is part of the cocoa value chain and is the addressed audience of the call of proposal (described in section Program Structure) Project applicant is connected to the Dutch market to be able to improve availability of sustainable cocoa products on the Dutch market. Ability to minimum co-fund 50,000 EUR by project applicant, either alone or by combining other private sources into one proposal, please see the section below with further information Finance criteria All proposals require a minimum level of private/public co-funding of 50%. The program allows for the submission of small and large projects application: Activities carried out under this program will be assessed as exempt for from VAT and any non-reclaimable VAT will be included in the expenditures. In the project evaluation there will be 5 core aspects that the project proposal will be assessed against. These are: 1. Sustainability 2. Traceability 3. Strength of linkages to the objectives of the Letter of Intent 4. Implementation in the selected regions 5. Level of impact on the Dutch market 6. Auditability Please find below a short description of each aspect. 1. Sustainability The projects will be assessed on a range of criteria in respect to sustainability that is addressing within the project. These are the 10 recognised elements from the Letter of Intent, namely on the following items related to the Letter of Intent: 1. Transparency 2. Compliance with laws and regulations Small projects are projects with a minimal private sector contribution of , where the Cocoa Origins Program would add a maximum contribution of Larger projects are project with a minimal private sector contribution of , where the cocoa origins program would add a maximum contribution of The maximum contribution from the Cocoa Origins program per project application is ,-. 3. Good price for cocoa quality, improved productivity and incomes for farmers 4. Access to credit and rural development services, and diversification 5. Market access and market information 6. Decent working conditions 7. Support for farmers and labour organizations Only projects that have a viable business case and that are likely to continue to be successful after the initial co-funding will be supported. This allows the private sector partners to develop trade relations that impact permanently upon the economic conditions of cocoa production. 8. Unique land use planning and good infrastructure 9. Wise management of natural resources 10. Conservation and wise use of biodiversity

11 11 Please note that the proposed project does not have to address all 10 areas but should at least touch upon 2 areas mentioned above. In the project application there should be a clear description on how the project applicant intends to address the selected element/s. 2. Traceability There shall be a link between the project at the origin of the supply chain and the product on the Dutch market. This link is called traceability. In the framework of Cocoa Origins three levels of traceability are recognised, identity preserved, full segregation and administrative traceability (mass balance). 3. Linkages to the objective of the Letter of Intent The contributes to the sustainability of cocoa consumption on the Dutch market. Submitted project applications must therefore show a clear link to support on how their project can contribute to one or more of the objectives listed below: 1. Improve the market share of sustainable cocoa 2. Improve the level of traceability of sustainable cocoa 3. Improve the impact of the sustainability of the cocoa 4. Improve the public awareness of sustainability the Western region, with focus on Sierra Leone, Liberia and Cameroon. The management team is willing to have conversation with projects outside of the defined regions if there is a relevant and strong linkage to the Dutch market. 5. Impact on the Dutch market The allows project applicants to sell the cocoa products related to the origin projects on the Dutch market as well as elsewhere. However, the higher the share of the production related to the project that is sold on the Dutch market, the more likely it is the project will be accepted. 6. Auditability The Program Management team wants to have an emphasis on the concept of guaranteed sustainability. By guaranteed, we mean to emphasize that these principles have been put into action in an internationally proven and externally verifiable way. There are different ways for this to be done. One way can be with internationally recognized labels, such as of Rainforest Alliance, UTZ Certified, Organic and Fairtrade. There is no formal restriction to cocoa that is certified by one of the voluntary certification schemes mentioned above, there is a requirement proof of audit by an independent third party. These third parties need to be approved by the Program Management team. 4. Selected regions The allows users of small volumes of cocoa to initiate sustainability programs at the origins of their supply chains. As some of these companies may not have experience in cocoa producing countries, the program will propose a small number of preferred regions where small projects can be initiated and showcased as examples. Besides the audits by third parties, the Cocoa Origins program will organise its own monitoring and evaluation. This requires auditable key performance indicators, KPI s. The project applicant shall define the KPI s related to the proposal and will score points for the SMART character of the KPI s. In order to reach out to a wide group of potential project applicants, the, is open for one region in Latin America and another region in Africa. The preference for projects in Latin America is for the Northwest region, with focus on Colombia. Projects in Peru and Ecuador will also be considered. The preference for projects in Africa is for

12 Co funding principles & guidelines for reporting Co-funding principles All proposals require a minimum level of private/public co-funding of 50%. All projects must meet the requirements of EU policies on competition and government procurement. This means that funding is only available for part of the extra costs that occur because of the development of a new supply chain or the re-arranging/expansion of an existing chain, costs of preparing and implementing the changes, but not the going concern expenditures and the costs of the input, the cocoa. The second category of subsidies is available for part of costs for the technical support projects with impact on social, environmental and or economic conditions for cocoa production and /or part of extra expenses that occur for project applicants because they participate in the project. Overhead costs (including all administrative personnel) of the project should not exceed 10% of the total project costs. All personnel and costs associated with administrative coordination and activities must be included in this threshold. Higher overhead costs may be considered in exceptional cases. CO FUNDING PRINCIPLES & GUIDELINES FOR REPORTING Guidelines for reporting The will follow IDH s standard reporting cycle as depicted below. If a project is selected with that consists of a group, the chosen representative is responsible to make sure that the report requirements can be fulfilled. A more detailed instruction on planning and reporting & the IDH Audit Protocol will be shared when an applicant is invited to prepare a full proposal. Annual report & revised budget due Feb 1 Progress report due Sep 1 If needed upated Annual plan due Oct 1 Partners of the are required to submit bi-annual reports. These reports have two components; a narrative report and a financial report. The template will be provided for both types of reports in the step of development of the full proposal. Financial report: The financial report is activity based and reports on actual expenditures against budgeted activities. Both budget and actuals are specified per project partner. A standard financial planning and reporting format will be provided with the Full Proposal Package to applicants that have been selected on the basis of their concept note. The financial report is subject to a financial audit 1.

13 13 Narrative report: The narrative report includes a quantitative KPI report and a qualitative narrative report against target. The applicable KPI s are listed in the table below. For the KPI report a standard planning and reporting format will be provided in the Full Proposal Package. In the qualitative narrative, partners will be asked to reflect on the general progress of the project, obstacles encountered and strategies to overcome these obstacles. The partners will also be asked to reflect on their key learnings more information on the purpose and type of information can be found in the learning chapter. 1. This audit should be conducted by an independent qualified auditor and in compliance to the IDH Audit Protocol, which is issued every year to the grantee. The scope of the audit covers both the grant from IDH as well as the investment by the private sector. The financial report and audit is on accrual basis, and not on cash basis; any other accounting principles are further clarified in the Audit Protocol.

14 The Program Governance THE PROGRAM GOVERNANCE The governance of the program consists of the following bodies: 1. Program Advisor Committee (PAC) 2. Program Management team 3. Project Review Committee (PRC) 4. Implementing Partner Program Advisor Committee (PAC) The Program Advisor Committee is composed by sector experts from private sector and government. The PAC is chaired by the IDH. The main role of the PAC is to provide strategic guidance to the Cocoa Origins Program with their experience in different aspects of the cocoa sector. Program Management team The Program Management team is composed by IDH and Equipoise. IDH has the overall responsibility for the implementation of this program and is jointly implementing this program with Equipoise. IDH will take up the role of: overseeing the program implementation contracting party of the project applicants Program monitoring Equipoise will take up the role of: Support companies in developing quality proposals Project monitoring Run the secretariat of the PAC Project Review Committee This committee will consist of 3 nominated members from the Program Management team, IDH staff and PAC. Their main responsibility is to evaluate the projects against the define criteria and share this with the Program Management. Implementing Partner (IP) Upon approval of the proposal, applicants will be contracted and become an Implementing Partner (IP) to the Program (see Appendix D). IPs are responsible for the implementation of approved projects that are co-funded by the Program. IPs must be able to comply with the required procedures for monitoring, reporting, financial management and auditing as requested by the Fund (in line with the Guidelines and the RMF). As such, they are responsible for gathering the necessary evidence of private sector contributions from all partners involved in the project. Annex A: Template for concept note Annex B: Scenarios of possible projects Annex C: Letter of Intention Annex D: IDH IP Guidelines for Monitoring & Reporting

15 15 Quick overview of the Total budget EUR 1.9 Mio public funding Overall Program objectives Increase sustainability of the cocoa production on the Dutch market Latin America: Colombia, Peru and Ecuador Selected regions Africa: Liberia, Sierra Leone and Cameroon Large projects in other countries/regions can be considered if there is a strong link to the Dutch market Minimum 50% public/private co-funding Funding principles Minimum 50% private sector co-funding for small projects (min value of 50,000 EUR private sector contribution) Minimum 50% private sector co-funding for large projects (min value of 100,000 EUR private sector contribution) Types of projects eglidable Supply chain innovation Field level projects Private partners or any organization with a legal status Who can apply (lead applicant) Direct: traders, processors, B2B manufacturers of semi-finished products such as couverture and industrial chocolate, B2C manufacturers of cocoa products (chocolate, cosmetics, ice creams, confectionery), bean to bar chocolate makers, craft chocolatiers, retail and others 1st call of proposals: Feb 2018 Program timelines 2nd call of proposals: End 2018 End of all projects: December 2020 Monitoring FLPs Projects co-financed by the must comply with the IDH Guidelines for Monitoring & Reporting (Guidelines, Annex D) and set specific farmlevel Key Performance Indicators (KPI), time-bound delivery targets and a robust data collection system to demonstrate that improvements have occurred.

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