Linking Smallholder Farmers in Tanzania to the Carbon Credit Market

Carbon markets can be a powerful tool in the fight against climate change. For smallholder farmers, they offer the potential to earn carbon credits for emissions-reducing activities—combining climate protection with income security. A project of Hanns R. Neumann Stiftung (HRNS) in Tanzania encourages coffee farmers to switch to agroforestry systems to adapt to and mitigate the impact of climate change while generating new sources of income. We review opportunities and risks for smallholder farmers.

Carbon credit markets assign a value to actions that reduce, avoid or sequester carbon emissions – with one carbon credit corresponding to the reduction of one ton of CO2. Carbon sources, such as businesses, can earn carbon credits by measurably reducing their emissions. Conversely, sources that emit more CO2 than they are entitled to, or that wish to produce carbon-neutrally, must purchase credits. The carbon market is the place where the two come together. It can therefore effectively combat climate change and is promoted as part of the Paris Climate Agreement.

Carbon farming—as this process is also called—is still relatively new and has a number of potential benefits. Most obviously, it can help farmers generate additional income while at the same time reducing CO2 emissions. Integrating tree growth into farms can also be a tool to help slow the rate of deforestation, increase soil fertility, regulate temperature, and enhance moisture retention as well as diversification. In many tropical regions, forests are converted to farmland on a large scale. This is a serious problem—both locally and globally—as it results in loss of biodiversity, degradation of soil and water, and carbon emissions.

By combining forest and climate protection without losing sight of the livelihoods of smallholders, carbon farming is a promising approach. “If it works, farmers can be both more productive and more sustainable at the same time,” explains Marco Kruse, Program and Partnership Manager at HRNS. However, the transition will only be successful in the long term, if the underlying system or farmer organization provides stable and secure conditions.

In cooperation with the ACORN (Agroforestry CRUs for the Organic Restoration of Nature) platform by Rabobank, the project “Integrated Carbon and Coffee-Based Livelihoods“ aims to connect coffee farmers in Tanzania to the carbon market by promoting agroforestry. In the pilot phase from 2022 to 2026, the project works with 2,000 farming families in the Mbinga district of Rvuma region. Food and income insecurities as well as soil erosion are serious issues in this area. To sustainably improve the situation, the project looks at the farmers’ entire production system. “The foundation's livelihood approach guides all our project activities: We support the development of family farms and farmer organizations, address the needs of youth and climate change, and promote gender equality,” explains Godfrey Wilgod, Agronomy and Climate Coordinator at HRNS Tanzania.

In farmer field schools, the farmers learn about agroforestry and carbon credits— but also about good agriculture practices in general. At the heart of the training is a new business case—developed in conjunction with ACORN and external consultants—involving agroforestry systems and carbon credits. It includes information on the appropriate number and varieties of shade trees, expected input costs, and revenues from crop yields and CRUs. “Local fruit and nut trees are chosen as shade trees that not only improve the soil quality for the coffee plants and are adapted to local characteristics, but also serve as an additional source of income and food for the farmers,” Wilgod emphasizes.

If the farmers decide to change their production system accordingly, they are closely supported and trained by the foundation, which also handles communication with ACORN. After planting the new trees, farmers can obtain CRUs from the third year onward and for at least 25 years.

Switching to the new production system creates new sources of income for the farmers: In addition to the income from the CRUs, the fruit and nut trees also generate additional revenue. It is also likely that agroforestry, if properly applied, will increase the productivity of the plot in subsequent years, as coffee trees may be able to produce higher yields under shade trees.

But this is not the only benefit. “Shock protection should not be underestimated either,” says Wilgod. In agroforestry systems, pests and diseases are less likely to spread and soil fertility increases due to enhanced nitrogen fixation. This can also reduce the need for and cost of fertilizers, herbicides, and pesticides. Agroforestry can also make farmers more resilient to extreme weather events and higher temperatures due to climate change, as shade trees act as windbreakers, create a favorable microclimate, and reduce soil erosion. In addition, shade trees with edible fruits increase farmers’ food security and income diversification enhances their income security, protecting them from price shocks.

But as with any change, there is a residual risk that the new business model will not be profitable: At least in the short term (two to three years), a loss of income is expected as some of the coffee trees are replaced by shade trees—resulting in lower coffee yields—and initial investments, e.g. for seedlings, are required. It is also uncertain how the market for carbon credits will develop. The fact that everything currently goes through Rabobank also creates the risk of a loss of income if the bank defaults. “However, based on the current low price of CO2 (around $50 in March 2024), the income from carbon credits will only represent a small fraction of the farmers' future income. But we expect the prices to rise over the long term,” Kruse notes.

A sticking point in the environmental evaluation of carbon credits is whether they actually reduce emissions over the long term. In addition to precise measurement and monitoring of emissions, which are ensured by HRNS and ACORN’s satellite monitoring system, other criteria must also be met, such as additionality (ensuring that the emission removals would not have taken place without the project), the ban on double counting (ensuring that the emission removals are not attributed to multiple projects) or permanence. ACORN credibly verifies these criteria, for example, farmers must confirm in a participant agreement that they do not clear the new trees for at least 25 years.

A disadvantage of working with ACORN is that only farmers with at least half a hectare of coffee plantation, who own the land, and have a local residency can participate. However, renting models and informal land titles are quite common in the region—barriers that might prevent the concept from spreading further.

“Although there are residual risks and hurdles, our overall assessment is that the benefits clearly outweigh the risks,” Wilgod concludes. As the project is still in the pilot phase, a final evaluation will only be possible in a few years.