Final Report Short Version.pdf

This report is made possible by the support of the American People through the United States Agency for International Development (USAID).

The contents of this report are the sole responsibility of INVEST managed by DAI and do not necessarily reflect the views of USAID or the

U.S. government.

STRATEGIES FOR TRANSFORMING

LANDSCAPES IN MEXICO

Communities as Agents of Sustainable

Change

March 2021

ACKNOWLEDGEMENTS

This report is made possible by the support of the American People through the United States Agency for International Development (USAID). The contents of this report are the sole responsibility of

INVEST managed by DAI and do not necessarily reflect the views of USAID or the U.S. government.

The U.S. Agency for International Development leads the U.S. Government's international development and disaster assistance through partnerships and investments that save lives, reduce poverty, strengthen democratic governance, and help people emerge from humanitarian crises and progress beyond assistance.

The INVEST mechanism was set up by USAID in September of 2017, through a contract awarded to

DAI, to build and engage a network of partner organizations with valuable investment and finance expertise, including those that have not worked extensively with USAID in the past. INVEST enables

USAID Missions, Bureaus, and Independent Offices to quickly access niche expertise from this diverse network of partner organizations. These partners work alongside USAID to deliver customized financing solutions that address investment constraints, mobilize additional private capital, and produce development results for a variety of sectors and geographies.

Sofía García Sánchez, Laura Ortiz Montemayor, and Stevie Smyth Valdez co-authored this report as independent consultants under INVEST. Stevie Smyth Valdez and Laura Ortiz Montemayor are impact investing advisors and partners at SVX México, an impact investing firm dedicated to catalyze investments in service of life, and Sofía García is an expert in landscape management, mitigation, and adaptation to climate change in the AFOLU sector and multiscale governance.

We would like to thank the many producers, associations, financial institutions and intermediaries, companies, non-governmental organizations (NGOs), donors, and other experts who helped create this report. These individuals are listed in Annex 2. Given the limited timeframe of the study, we recognize we were not able to speak with everyone working on sustainable landscapes in Mexico. Going forward, we look forward to hearing additional perspectives from other partners.

CONTENTS

PURPOSE AND CONTEXT 5

CAUSES OF DEFORESTATION AND FOREST DEGRADATION 6

BENEFITS OF A LANDSCAPE APPROACH 7

ENVIRONMENTAL AND RISK-MANAGEMENT BENEFITS 7

BENEFITS FOR PRODUCERS 7

BOTTOM-UP DECISION MAKING AND SUSTAINABILITY OF RESULTS 8

METHODOLOGY 9

FOCUS GROUP RESULTS 10

SUMMARY OF FINDINGS FROM ALL FOCUS GROUPS 10

BIODIVERSITY CONSERVATION 10

FINANCING AND POTENTIAL MARKETS 11

LOCAL GOVERNANCE, INCLUDING WOMEN AND YOUTH 12

INTER-INSTITUTIONAL GOVERNANCE 12

RULE OF LAW 12

RECOMMENDATIONS 12

BIODIVERSITY CONSERVATION INCLUSION 13

ACCOUNTABILITY, TRANSPARENCY, OWNERSHIP, LEADERSHIP, GOVERNANCE, AND

BUDGETS ARE INTERTWINED 13

DESIGN BY AND WITH THE COMMUNITY: “NOTHING FOR ME WITHOUT ME” 14

LOCAL LEADERSHIP INITIATIVES: EMPHASIS ON GENDER INCLUSION AND YOUTH 15

BUILD ON GOOD GOVERNANCE PLATFORMS THAT ALREADY EXIST WITHIN THE

LANDSCAPES 15

PRIVATE SECTOR CORPORATIONS CAN CONTRIBUTE MORE “SKIN IN THE GAME” 16

ENSURING WEALTH IS DISTRIBUTED WITHIN THE LANDSCAPE 16

DESIGN WITH THE EXIT STRATEGY IN MIND 18

CONCLUSION 18

ANNEX 1. CASE STUDIES 19

GOVERNANCE AND COMMUNITY LEADERSHIP: UZACHI 19

TECHNICAL ASSISTANCE ASSOCIATED WITH FINANCING: FINDECA 19

FINANCIAL SUPPORT FOR MARKET ACCESS: BUEN VIVIR FUND’S CORAZÓN VERDE 20

PARTICIPATORY OR DISTRIBUTED MANAGEMENT AND OWNERSHIP: GRUPO PAISANO 21

GUARANTEED PURCHASE ORDERS: TOKS AND SANTA ROSA MARMALADE 21

LUSH CORPORATION 21

ANNEX 2. LIST OF FOCUS GROUP PARTICIPANTS 23

ANNEX 3 FOCUS GROUP SUMMARY FINDINGS 27

CHIAPAS (SIERRA MADRE) FOCUS GROUP 27

SELVA MAYA (CALAKMUL Y LACANDONA) FOCUS GROUP 27

OAXACA (SIERRA SUR) FOCUS GROUP 28

GLOBAL LANDSCAPES FOCUS GROUP 28

MARKET CATALYZERS FOCUS GROUP 29

ANNEX 4. TABLE OF FINDINGS FROM EACH FOCUS GROUP 31

ANNEX 5. ADDITIONAL BEST PRACTICES 35

BIBLIOGRAPHY 37

PURPOSE AND CONTEXT

Development Objective (DO) 2 of USAID/Mexico’s five-year Country Development Cooperation

Strategy (CDCS) targets expanded bilateral economic ties through an improved competitive business climate. Under this DO, USAID will focus on improving the competitive business environment by capitalizing on the projected growth of sustainable value chains and the initiative of the Mexican private sector to self-regulate in terms of transparency and integrity practices.

USAID’s approach under DO 2 will be scaled by the private sector, amplifying one of Mexico’s comparative strengths. The vision is that an improved competitive business environment—brought about through better managed natural capital, increased market opportunities, and greater transparency and integrity—will advance and expand the U.S.-Mexico strategic partnership, resulting in broader prosperity for both countries. This report focuses on the challenges and recommendations to achieve these objectives in three Mexican landscapes: Campeche / Quintana Roo (Calakmul), Chiapas (Sierra

Madre and Lacandona), and Oaxaca (Sierra Sur).

Deforestation, forest degradation, biodiversity loss, and climate risks threaten Mexico's competitive business climate. Conservation, restoration and even regeneration are necessary to protect communities’ livelihoods and reduce risks to businesses' supply chains, reputations, and ability to attract investment.

CAUSES OF DEFORESTATION AND FOREST DEGRADATION

According to the Food and Agriculture Organization (FAO) and analysis of national-level information sources (Land Use Series of INEGI), the deforestation rate in Mexico decreased to an average rate of

0.2% between 2010 and 2015, which represents a net loss of approximately 91,700 hectares per year

(FAO, 2015). The decrease in the national rate does not adequately represent regional heterogeneity.

Each forest ecosystem in Mexico is unique. The deforestation dynamics, degradation processes, human activities, and natural disasters vary in each and their dynamics can change over time.

Forest degradation is a complex process. Public policies and market forces directly and indirectly contribute to deforestation and land degradation. The costs of deforestation and forest degradation include the loss of economic opportunities, ecosystem functioning, biodiversity, and environmental services (Sarukhán, J., et al. 2009). In addition, many activities that cause deforestation and forest degradation also generate significant greenhouse gas (GHG) emissions.

According to the 2015 emissions inventory, the Agriculture, Forestry, and other Land Use (AFOLU) sector contributed 14.59% (102,059.50 Gg of CO2e) of total emissions in Mexico. Of that amount, emissions from livestock contributed 69%. Emissions from other land uses contributed the remaining

31%. However, because the amount of greenhouse gases removed from the atmosphere through sequestration (-148,346.07 Gg of CO2e) is higher than the amount of greenhouse gases emitted, the sector still is a net carbon sink (INECC, SEMARNAT, 2015).

There is some consensus among scientists regarding the causes of forest degradation. In the south and southeast of Mexico, forest degradation is related to land-use change, with a transition to agricultural uses, tourist development, and urban and industrial uses that generate higher profits. While there are policies, laws, and regulations in place to reduce deforestation, there are challenges in implementation and coordination with the sectors that have the greatest impact on land-use change. (Challenger, A. and

R. Dirzo, 2009).

These changes in land use are fostered by growth and production models that do not prioritize sustainable economic development nor the ecosystems’ cultural, social, and spiritual values in decision-making, instead favoring production and consumption models that lead to vegetation cover loss.

Economic forces and incentives also have an impact. Domestic forest products are not profitable enough, facing disadvantage in the market due to high transaction costs and lower productivity.

Additionally, government subsidies available for livestock, fruit, or agro-energy activities are often more attractive than forest subsidies. As a result, they favor productive conversion towards non-forest uses and the unsustainable use of natural resources.

Despite the challenges, there are positive examples in Mexico. For more than a decade, the Yucatan

Peninsula, Oaxaca, and Chiapas have been part of REDD+, an initiative of the U.N. Framework

Convention on Climate Change focused on reducing emissions from deforestation and degradation.

They were particularly engaged in early activities, which provide an excellent foundation for designing and implementing sustainable landscape management activities. Capacity exists at the community and subnational level to continue implementing activities to stop deforestation and ecosystem degradation and promote sustainable practices (ENAREDD+, 2017).

BENEFITS OF A LANDSCAPE APPROACH

According to the Global Landscapes Forum, a landscape approach “is about balancing competing land use demands in a way that is best for human well-being and the environment.” To reduce deforestation and greenhouse gas emissions in specific landscapes in Mexico requires collaboration with a wide array of stakeholders including local communities, environment NGOs, the private sector, and others who have an interest in the governance and management of a landscape. Adopting a landscape approach can offer several economic and environmental benefits.

ENVIRONMENTAL AND RISK-MANAGEMENT BENEFITS

The private sector has acknowledged the need to mitigate supply chain risks and understands that raw materials come from landscapes affected by climate change. Companies that do not consider climate and social justice risks present in their supply chains contend with intense pressure from investors to disclose and mitigate climate and social risks or face the prospect of losing investment (Mohin, 2021). A landscape approach, including local governance and land management so that the landscape can act as a carbon sink, addresses both the social and environmental factors currently pressuring supply chains.

Making rural agriculture and livestock practices more sustainable as part of a landscape approach can contribute to the reduction of GHG emissions. For example, aggregation to manage multiple products collectively can reduce transportation needs and combining polyculture systems with holistic management can reduce the need for fertilizers and pesticides. Approaches like these can reduce emissions and safeguard biodiversity and water quality.1

Ecosystem-based adaptation approaches can mitigate climate risks from droughts, floods, drastic changes in temperature, and megafires. Expanding existing approaches to incorporate a system’s perspective at both bioregional and watershed scales offers enhanced benefits over risk management by production unit. Social risks can also be mitigated by promoting community empowerment and participation in decision-making, budget planning, and activity design, both in the early planning stages as well as in the longer term. Wider data collection can also lead to greater information efficiencies.

BENEFITS FOR PRODUCERS

A holistic approach is fundamental in designing interventions that mitigate GHG emissions as well as activities that generate new sources of income for communities and promote adaptation to climate change. The landscape approach fosters efficiency and efficacy as it promotes synergies between emissions reductions and other environmental, social, and economic benefits. In southern Mexican landscapes, activities that have proven to mitigate GHG emissions in the past include: regenerative and silvopastoral livestock; biodynamic agriculture; polyculture systems; conservation agriculture;

There are many studies that look at options for reducing GHG emissions in agriculture, cattle ranching, animal husbandry and other land related activities (Soliviev, 2018).

agroforestry systems; payment for environmental services in areas with high deforestation rates;

sustainable forest management; reforestation; and restoration of degraded areas, among others.

An effective landscape approach must offer opportunities to produce diversified products and services that in turn diversify income streams for local communities, thus reducing environmental stress on forests and other ecosystems. This diversification can generate resilience against certain crop losses, more stable and diversified cash flows for producers, higher overall incomes, and long-term health benefits that healthy forested lands confer.

These benefits were highlighted in a recent report and analysis conducted by the International Union for

Conservation of Nature (IUCN) in Oaxaca. The report found that producers using agroforestry practices to produce arabica or robusta coffee alongside other crops such as banana, cacao, cardamom, beekeeping, and timber production could earn a net income between $90,000 and $300,000 MXN

(approximately $4,300-$14,500 USD) per hectare per year—much higher than producers using traditional models.

The study also compared traditional cattle ranching versus a forest grazing model that included beekeeping and timber production. The rancher in the traditional model has a net present value (NPV) of $767 MXN per hectare per year (looking at a 20 year model) while the forest grazing model had an

NPV of $15,174 MXN per hectare per year, including the cost of the rancher’s labor. This model highlights the importance of complementary sources of income, such as income from honey sales, which in this case represented 36% of the forest grazing cattle rancher’s income in the first few years after the ranch’s transition.

BOTTOM-UP DECISION MAKING AND SUSTAINABILITY OF RESULTS

In the past, most landscape-level interventions involved a top-down approach, with government-led land-use planning for biodiversity conservation leaving little decision-making power for local communities. During a series of focus groups held in February 2021, participants reiterated the importance of employing a bottom-up approach, because smallholder producers (including all landscape labor) and private sector actors have, until now, been underrepresented in landscape initiatives.

Capacity-building and knowledge transfer, which are essential for local stakeholder involvement, could also improve representation. Finally, it is increasingly understood that the success of landscape-level sustainable development can only be measured and enhanced by deploying monitoring frameworks that include a broad array of representative indicators, creating transparency and the ability to adjust approaches as needed. Monitoring and adaptation, therefore, are essential elements in landscape approaches (Sarah van der Horn and Johan Meijer).

“Processes generate effective long-term results; projects do not.” Elsa Esquivel, AMBIO

The challenges to be addressed in the priority landscapes highlighted in this report are many and systemic. However, the focus groups came to a consensus that the main challenge to be addressed is increasing value to all land stakeholders, including more income to producers through better land management and consumer value of the products that come from the land. The groups identified community-owned enterprises as a key solution but were careful to mention that ensuring adequate processes with an intervention was more important than the intervention itself.

METHODOLOGY

This report is the product of a consultation process held in collaboration with USAID with the purpose of identifying approaches to decrease greenhouse gas emissions and increase smallholder producer income in targeted regions in Mexico. USAID/Mexico is interested in catalyzing innovative solutions that utilize a landscape approach and fostering collaboration among the private sector and other key stakeholders along zero-deforestation value chains.

USAID/Mexico identified Campeche and Quintana Roo (Calakmul), Chiapas (Sierra Madre and

Lacandona), and Oaxaca (Sierra Sur) as priority landscapes. Due to COVID-19 restrictions and a short timeline to gather data, field visits to the landscapes could not be conducted and all work was carried out remotely. As a result, the report team used interviews, review of previous studies, focus groups, and surveys to gather data and draw conclusions for this report.

In order to build on lessons learned from current USAID programs, interviews were conducted with current USAID/Mexico partners. Additionally, the report team and USAID identified a long list of actors as potential focus group participants, considering the priority landscapes. The actors were sent a survey before each focus group asking about their activities in the priority landscapes at the intersection of

GHG emission reduction, reduction of deforestation, improving livelihoods, and collaboration among actors in the landscapes. The report team received 33 responses by the end of the data collection period.

The report team held five focus groups in total (See Annex 2), one group for each priority landscape focusing on that landscape’s challenges and needs, one group of global actors working with a landscape approach, and one group of market catalyzers. The market catalyzers group was composed of businesses or business associations that add value and commercialize sustainable products from the landscapes in national and local markets—mostly grocery chains, small cafés, and retailers. In the focus groups for each of the three landscapes, diverse stakeholders were invited, including NGOs, producer groups, financing entities, market intermediaries, large corporations, carbon credit experts, and local governments. Each of the five focus groups were held over a 2-hour video call session where participants were given context and asked questions as the project team took notes and facilitated follow up conversation. (See Annex 3 for the specific results of all focus groups.)

Once the focus groups were completed, the report team systematized the qualitative data based on theoretical categories of integrated landscape management. Throughout the process, the report team conducted an ongoing literature review looking at sources relevant to Mexican landscapes, ecosystem regeneration, landscape management, complex change, and systems thinking.

FOCUS GROUP RESULTS

SUMMARY OF FINDINGS FROM ALL FOCUS GROUPS

The report team found that a number of findings cut across all focus groups. . An overarching outcome of focus group discussions was a refined understanding of landscape potential and enabling environment characteristics relative to Mexico.

Focus group participants identified several different examples of enabling conditions and types of potential present in each of the landscapes, as illustrated in the graphic below. Biodiversity conservation, financing and productive markets, local governance, and government and rule of law were the categories most cited or emphasized across all landscapes.

Graphic 1. Source: Prepared by the authors based on focus group results.

BIODIVERSITY CONSERVATION

Many focus group participants acknowledged that biodiversity is key to landscape health and mentioned biodiversity loss as a major threat to sustaining livelihoods within the landscapes. The impacts of climate change and biodiversity loss on value chains are significant, ranging from losses due to pests, floods, and droughts to megafires and pandemics, which threaten food security and communities’ livelihoods. Those impacts are exacerbated by the loss of biodiversity due to the expansion of the agricultural frontier when communities undervalue the ecosystem services or biodiversity conservation benefits provided by forests, rainforest, and other ecosystems. This reflects the existence of public policy that creates incentives for agriculture and extensive livestock at the expense of ecosystem services conservation.

Trends are shifting in the global financial sector and in donor discussions. There is a growing consensus that efforts on climate change and carbon neutrality have to evolve beyond reducing emissions to restoring and regenerating2 ecosystems, with an increase in focus on natural capital3 as a whole. Interventions could take advantage of the growing demand from investors of publicly traded companies to report on and respond to climate and nature-related risks and impacts.4

FINANCING AND POTENTIAL MARKETS

Focus group participants suggested that supporting community-owned market intermediaries, instead of external actors, with impact-motivated, profitable, and transparent business models would be beneficial.

In addition, initiatives to guarantee the purchase of products produced from zero-deforestation value chains are needed. Purchase guarantees like these can give producers confidence that the risks associated with the transition to sustainable and regenerative practices are worth taking. Initiatives could include activities to partner with local companies and connect them with markets, while in the long term embedding these market linkages within the community enterprise operations. Furthermore, raising awareness among consumers to consider social and environmental sustainability of the products they purchase is needed.

The need for improved business capacity was mentioned in all groups, highlighting that some producers and community businesses maintain short-term financial perspectives, with no in-depth analysis to identify whether they are profitable. Several participants mentioned that the costs associated with women and youth labor are not considered in the pricing of products.

Enhanced access to finance was mentioned in three out of five of the focus groups: the market catalyzers group, the Calakmul group, and the global actor’s group. If the transition to sustainable agricultural practices is to be financed, there is no single finance tool that would work for whole landscapes. Financing community enterprises and the transition to a production landscape approach would require the interweaving of dedicated grants, subsidies, debt, capital, and purchase orders. In the case of debt for smallholder producers, participants mentioned that the size requirements and terms

Regenerative agriculture and regenerative paradigms are increasingly popular as "solutions" for the climate and biodiversity crisis.

Regeneration is profound and not just about capturing carbon back into soil. It is about putting reciprocity back in our relationship with nature and each other. These two sources regeneration and regenerative agriculture could provide valuable insights:1. Levels Of Regenerative

Agriculture by Terra Genesis International and 2. The Regenerative Agriculture Continuum by Ethan Roland Soloviev.

In recent decades and due to ecologists and pioneering economists' influence, natural capital has been incorporated as the set of ecosystems, both natural and those managed by humankind, which generates goods and services and is perpetual either by themselves or through human management. Some authors include in this last type of capital other natural assets such as hydrocarbons and minerals (CONABIO,2017) One example of this trend shifting is that the Task Force on Climate Related Financial Disclosures has moved into mainstream finance and many asset managers and banks are already signed up to improve reporting information. The most advanced pioneers and cutting-edge leaders went one-step ahead and formed the The Taskforce on Nature Related Financial Disclosures (TNFD).

http://www.terra-genesis.com/wp-content/uploads/2017/03/Levels-of-Regenerative-Agriculture-1.pdf http://www.terra-genesis.com/wp-content/uploads/2017/03/Levels-of-Regenerative-Agriculture-1.pdf https://medium.com/@ethansoloviev/regenerative-agriculture-continuum-4346f78dde3e https://www.fsb-tcfd.org/ and conditions would need to be better aligned with smallholder producer needs. They also suggested offering at least two years of business capacity-building to support producers to grow enough so that larger financial intermediaries could then finance their working capital and other enterprise needs.

LOCAL GOVERNANCE, INCLUDING WOMEN AND YOUTH

Within a landscape, two types of governance predominate. One is the inter-institutional governance that enables conditions for implementing sustainable actions at the landscape scale. The other refers to the local governance structures associated with communities and producers, specifically communal decision-making bodies and their internal structures. The need to strengthen inter-institutional governance is highlighted in the next section. The focus groups largely agreed that each landscape already has a strong base for local governance, but any intervention should continue to build capacity for local governance as part of larger projects. In particular, the participation of women and youth must be strengthened since they usually lack access to land ownership and are typically left out of the design and construction of interventions at the landscape scale.

INTER-INSTITUTIONAL GOVERNANCE

One of the toughest challenges to address in terms of forest cover and biodiversity loss are the lack of inter-institutional arrangements to align public policies within a territory. Consolidation of agreements with sub-national and local governments to promote territorial planning that favors policy alignment is important. However, most focus groups noted that because of recent budget cuts, particularly those impacting national environmental agencies, there may be more immediate opportunity to work with subnational governments and community-level governance and decision-making to progress work to stop deforestation and species loss in specific landscapes. One example of a success regarding institutional arrangements from Chiapas, is the inclusion of the landscape approach in the Vision of 2030 and the Estate Program of Development (2019-2024), which is operationalized in the Map for Resilience to Climate Change (MARACC)5.

RULE OF LAW

Illegal activities involving drugs, arms, and human trafficking have increased exponentially in recent years and have caused a breakdown of the social fabric, giving rise to greater insecurity and making it difficult to operate businesses within the priority landscapes highlighted in this report. Impunity also contributes to a lack of investor interest and confidence as 95% of crimes go unreported and only 12% of reported crimes are investigated.6

RECOMMENDATIONS

The following is a summary of recommendations from the focus groups, with references to relevant literature and examples. Additional examples are provided in the report’s annexes.

https://maracc.chiapas.gob.mx/descargas.php https://aristeguinoticias.com/1303/mexico/la-impunidad-en-mexico-es-de-99-3-no-hay-policias-ni-jueces-suficientes-udlap/ https://maracc.chiapas.gob.mx/descargas.php

BIODIVERSITY CONSERVATION INCLUSION

One of the main topics discussed in the focus groups was the importance of biodiversity at the landscape level. There is ample evidence that climate change already affects and will continue to affect biological diversity, but diversity also can be used to reduce climate change impacts. The adoption of adaptation and mitigation strategies based on biodiversity and nature-based-solutions can increase ecosystems resilience and reduce the risk of harm to human and natural ecosystems. (See Nature-

Based Solutions (CBD, 2007) for other examples of such strategies).

Some strategies that promote biodiversity at the landscape scale are: a) maintenance and restoration of native ecosystems; b) protection and enhancement of ecosystem services; c ) management of endangered species habitats; d) creation of refugee and buffer zones; e) establishment of networks of terrestrial, marine, and freshwater protected areas in alignment with climate change projections; and f) promotion of multifunctional agro-diverse landscapes and sustainable production practices, including native species (CBD, 2007 and CONABIO, CONANP , PNUD, 2020).

These actions can improve ecosystem services, including primary productivity, the formation of fertile soils, the recycling of nutrients, and the water cycle. They can also help reduce GHG emissions and deforestation and forest degradation (Balvanera et al. 2009). All the above are important factors that contribute to food security and community livelihoods.

Local landscape experience illustrates the benefits of designing multidimensional interventions that link biodiversity to reduction of GHG emissions. These interventions should also incorporate regenerative approaches, such as sustainable agriculture and holistic livestock management, sustainable forest management, and agroforestry. There is scientific evidence demonstrating that increasing biodiversity has a positive effect on ecosystem services, including in carbon sinks that reduce GHG emissions.

Moving beyond goals to reduce deforestation and GHG emissions towards goals to increase biodiversity represents an important shift in development finance. Every sector should recognize biodiversity’s role and value to the landscape and support initiatives that actively promote conservation and restoration.

ACCOUNTABILITY, TRANSPARENCY, OWNERSHIP, LEADERSHIP, GOVERNANCE, AND

BUDGETS ARE INTERTWINED

According to the focus groups, any effective landscape project must be accountable and transparent to local communities as much as possible and should be co-designed, co-managed, and co-owned by the landscape communities wherever possible. Landscapes already have some well-recognized local capacities and leadership that, with some additional technical assistance or business support, would be capable of gradually assuming control over larger, more effective, and profitable businesses. If management responsibilities and ownership are shared with local communities, their need for external support should gradually decrease as they develop and strengthen local business capacities and leadership.

Focus group participants recommended that interventions be designed so that communities and local organizations retain leadership and decision-making control. . In the past, foreign interventions at the landscape level have failed to provide enough transparency and decision-making for local communities in the landscape. In most cases, organizations that are external to the landscape should co-design programs and make budget decisions with community enterprises and community-level governance.

In addition to using the strategies above, activities should follow the three Transformative Finance

Principles(Simon, 2017): “1) projects are primarily designed, governed, and where feasible owned by communities” (beyond consulting for their prior informed consent); 2) “investments add more financial value than they extract;” and 3) “the financial relationship fairly balances risks and returns among all stakeholders.” Examples of the application of these principles can be found in Annex 1.

DESIGN BY AND WITH THE COMMUNITY: “NOTHING FOR ME WITHOUT ME”

Each of the landscape-based focus groups mentioned the need for community leadership and a focus on the long term in addressing the key challenge of placing more of the landscape value into the hands of the producers and stewards of the land. Future projects should demonstrate that the community was not only consulted, but that they were co-designers of proposed projects.

This concept is well summarized by the first of the three Transformative Finance principles7 above, which recommends engaging communities in design, governance, and ownership. This principle was developed as a response to communities being treated as inputs—i.e. as labor or consumers—rather than participating in all stages of enterprise development and management, as well as in long-term value creation through ownership, thus becoming agents of their own change. This does not mean that all smallholder producers need to become entrepreneurs that add value to their products and commercialize and scale their companies. They can, however, become shareholders and profit from the value-add of their products and services. The focus groups highlighted that this can happen through a community enterprise model.

7 Real Impact: The new economics of Social Change. Morgan Simon. http://morgansimon.com/

LOCAL LEADERSHIP INITIATIVES: EMPHASIS ON GENDER INCLUSION AND YOUTH

Women and youth could benefit from building an asset base participating in the shares and equity of companies that contribute to added value markets. Ownership of assets can prove to be more effective in the long term to graduate people from poverty than increasing their income from a very low starting point. An example of participatory or distributed management and ownership in Mexico can be found in

Annex I, in the Grupo Paisano case study. Distributing ownership of and benefits from companies that have the value-added margins within the communities is a space for social justice and women and youth inclusion.

Source: Prepared by the authors based on focus groups’ results

BUILD ON GOOD GOVERNANCE PLATFORMS THAT ALREADY EXIST WITHIN THE

LANDSCAPES

The focus groups emphasized the importance of leveraging the work already conducted over the years in each of the landscapes to build up community governance and landscape management. In some cases, these were decades-long investments by many local, national, and international governments and local communities.

Future activities should demonstrate direct involvement of complementary programs and activities, ultimately providing evidence of collaboration and the leverage (whether financial or in-kind) of various programs that are ending or in progress.

PRIVATE SECTOR CORPORATIONS CAN CONTRIBUTE MORE “SKIN IN THE GAME”

A corporation’s supply chain originates in the landscape as a raw material or commodity. Even though the core product originates in the landscape, the companies’ finances treat the landscape as an externality. Large corporations in the global focus group mentioned that it is challenging for them to work at the individual producer scale. The producer community and the forests that provide ecosystem services are not in these companies’ control. Therefore, while producers may receive capacity-building services, small grants, or loans from corporations, they bear nearly all of the risk in sustainable transition practices.

Corporations’ payroll, benefits, and insurance do not cover last-mile producers, let alone their climate risks. If corporations want better, sustainable products, shouldn’t they bear most of the risk and costs of the sustainable transition (such as certifications, capacities, and resilient last-mile infrastructure) as well?

In the end, the business and investment case for this transition ultimately benefits the corporations that sell these products at a profit the most.

Corporations and donors working toward more sustainable landscapes must ask themselves:

● Are producers currently subsidizing the sustainability evolution of corporation’s products and services?

● Can we shift risks and benefits of the sustainability transition, so they are better or more fairly distributed?

ENSURING WEALTH IS DISTRIBUTED WITHIN THE LANDSCAPE

Community-owned enterprises are key to adding value to commodities and raw material within the landscape. Every focus group mentioned community enterprises and the power for a community enterprise to gain additional income through adding value to products cultivated in the landscapes.

However, the recommendations went beyond just associating producers to buy inputs and sell commodities. The recommendation is to redesign enterprises according to the community’s vision, transform producer’s associations into businesses, and increase products' value by working with local partners. Fostering community companies' associativity would generate significant progress in market challenges, such as achieving common objectives, economies of scale, skills, potentials, and logistics (See

Toks and LUSH Corporation study cases in Annex 1).

ADDED VALUE AND FACILITATING ACCESS TO MARKETS

“Transforming local community leaders into business people needs constant development and we need fair and trusted partners to provide business capacities.” Alfonso Argüelles (Alianza Selva Maya) and

Hugo Cárdenas (The Nature Conservancy)

Usually, if a smallholder producer is working in isolation, he or she can only obtain limited resources through selling his or her produce (usually at very low prices established by local intermediaries).

Options for complementing income are limited to subsidies or philanthropy. Association with more producers is a key strategy for producers to increase their income potential.

Source: Prepared by the authors based on focus group results The greater the number of producers associated under one organization or cooperative, the greater access to markets they attain and the greater added value they can provide. Achieving a critical mass of product volume is important for logistics and distribution, investments such as packaging or processing equipment, and the ability to sell to higher-end markets, corporate buyers, or exporters. Developing competitive products and associativity that can tackle different market segments (e.g. the differentiated retail markets versus wholesale and bulk markets) is related to scale: the greater the scale, the more the producer group can invest in value-adding assets.

Focus group participants shared evidence from several supply chains that pre-paid purchase orders, up-front capital from buyers, and long-term purchase orders can transform producers’ transition to sustainability at scale. Producers are taking great risks and usually lack the capital to transition to more sustainable practices that require them to change systems or inputs. With the security provided by future purchase contracts, producer groups can access financing on better terms, for example with lower interest rates or longer repayment timelines. Evidence of this type of financing can be found in

Annex I.

DESIGN WITH THE EXIT STRATEGY IN MIND

The continuity and sustainability of landscape interventions was first mentioned in a conversation with other global development donors and was reinforced during the focus group conversations. For example, a representative of one financial institution mentioned their frustration with NGOs approaching them to finance smallholder producers when donor funding for technical assistance was about to end. If the use of financial institutions to continue the project had been designed with participation from the lending institution, the lending institution could have designed better loan products for the producers, and designed the technical assistance to include credit-readiness from the beginning of the project.

This recommendation not only applies to the long-term financial sustainability of the project but also the desire of the focus group participants to have the communities in the landscapes take ownership and leadership of the interventions early on in the project in order to guarantee continuity. For this reason, one participant from the donors’ meeting noted that a lesson learned from their programming was to support capacity-building for local business managers.

CONCLUSION

The transition to more sustainable supply chains offers both compelling development impacts, as well as attractive investment opportunities. Transforming practices which currently deplete the landscape and exploit communities into regenerative models can also foster greater justice and climate resilience. This report’s findings offer helpful insights for co-designing and implementing future interventions for productive landscapes in Mexico. These recommendations provide a blueprint for long-term impact and are based on the understanding that thriving communities can only happen within thriving landscapes.

Therefore, any intervention aimed at promoting more sustainable supply chains and more competitive business environments must recognize natural and social capital, associated with ethical and cohesive infrastructures, as key sources of value creation.

ANNEXES

ANNEX 1. CASE STUDIES

GOVERNANCE AND COMMUNITY LEADERSHIP: UZACHI

Union of Zapotec-Chinanteco Forest Producing Communities of the Sierra Juárez de R. I. (UZACHI) is an ejidos’ union, founded in 1989 that includes 4 agrarian nuclei in 3 municipalities: Capulálpam de

Méndez, La Trinidad Ixtlán, Santiago Xiacuí, and Santiago Comaltepec. It has a total area of 24,000 hectares of mesophyll forests, pine-oak forests, and pine forests.

UZACHI was created in response to the struggle to return forests to local communities and indigenous peoples, and bolster their ancestral knowledge of social, economic, environmental, and cultural forest management. UZACHI is governed by an assembly of 16 delegates, who are appointed by the communal landholders’ assemblies that represent their four agrarian nuclei.

These are truly organized communities where land and forest are socially owned (community vision).

They have well-developed administration and management plans aligned with Mexican laws and programs. Their processes are inclusive, full-cycle (log-industrialization of woodland management), and vertical, and the union is functional and profitable.

The integrated ecosystems management employed by UZACHI results in harmonious coexistence and supports the preservation of the Sierra-Norte Chinantla region, one of the most biodiverse ecosystems in Oaxaca and Mexico. UZACHI's successful experience in monitoring its resources is mostly the result of a robust organizational structure that links community authorities, their technical team, and members' assemblies.

This is the first case of voluntary land-use planning led by indigenous peoples (the Zapotec culture) in

Mexico. This triggered a process that resulted in what is known as "community forestry", a process that the Mexican government has institutionalized within the National Forestry Commission (CONAFOR).

TECHNICAL ASSISTANCE ASSOCIATED WITH FINANCING: FINDECA

The Forest Investment Program (FIP) operates within the Climate Investment Fund framework and supports countries' efforts to reduce deforestation and forest degradation. The FIP promoted sustainable forest management, reduced emissions, and increased forest carbon stocks (REDD+). They operate through donations, concessional funds, and risk mitigation instruments, which leveraged financing from private and multilateral development banks.

As an FIP pilot country, Mexico received a $60 million USD grant to design and implement its

Investment Plan for a 6-year period (2013-2019). This plan was focused on the REDD+ Early Action

Areas (AATREDD+) and included four projects:

● Building capacity for sustainable management of forest landscapes

● Adaptation capacity, mitigation, and sustainable profitability in forest landscapes

● Creation of a financing line for low-carbon strategies in forest landscapes

● Support for micro, small and medium-sized enterprises that operate in community-owned forests.

In partnership with FINDECA, the EmFoCo y Desarrollo project created an agile and timely mechanism for financing Community Forestry Enterprises (CFEs) Their approach fostered close follow-up with borrowers as a key element for loan approval and repayment. FIDECA’s role was essential to promote local capacity development and their participation encouraged CFEs to keep a clean credit record, a requirement for recurring users.

Unlike most forestry sector programs, EmFoCo y Desarrollo approach facilitated CFEs’ access to financing and technical assistance through a flexible framework that administered credit according to producers' capacities. Offering adequate credit packages for CFEs was challenging, because traditional guarantees are uncommon in the rural business segment, which prioritizes pledge and mortgage guarantees. FINDECA found advantages in working with alternative guarantees better suited for rural businesses and accessing support offered by other institutions in the sector, such as the Financiera

Nacional de Desarrollo Agropecuario, Rural, Forestal y Pesquero (FND), and the National Forestry

Commission (CONAFOR).

The credit products designed by FINDECA also had other comparative advantages, such as overall lower costs. While the interest rates FINDECA offered to CFEs were higher than those offered by the

National Development Bank, they did not charge commission for activities such as file integration, credit study, and account opening and management. This was reflected in the total annual cost, which was lower than those reported by government banking institutions that operate in rural Mexico.

FINDECA had a remarkable loan placement performance. Their approach made it easier for companies to manage credit, increased confidence in their instrument, and strengthened solvency and internal administration capacity. In total, 64 CFEs received assistance, and they extended 92 loans totaling $103 million MXN to 28 CFEs with a 0% default rate.

FINANCIAL SUPPORT FOR MARKET ACCESS: BUEN VIVIR FUND’S CORAZÓN VERDE

Ñepi Behña means "woman with dignity" in ñähñú, an indigenous language spoken by the Otomí people in Hidalgo, Mexico. They are an independent and engaged grassroots organization working with women artisan groups living in poverty and with high migration rates. They foster economic, social and cultural strategies that promote dignity and equal development for their rural indigenous communities.

In 1998, they partnered with Idear S.C to help a ñähñú artisan women's group at the Mezquital Valley secure a Fair-Trade Principles certification, so that they could continue selling their products to The

Body Shop.

Ñepi Behña fosters leadership skills in women, so that they can have a positive impact on their community’s food and environmental sustainability, and overall, wellbeing. They work on four pillars:

education, sustainability, alternative economies, and Fair Trade.

They have helped create nine cooperatives which serve as educational and production spaces offering women beneficiaries an alternative for their economic autonomy. In 2008 they co-founded the Fair-

Trade Central Corazon Verde along with the cooperatives, to help their products achieve greater market reach. Their experience with artisans has shown that existing Fair Trade certification has their own limitations. To address that gap, they are now designing a Participatory Certification System that creates a Fair-Trade certification with a focus on gender and inclusion, specifically tailored for women producing crafts.

PARTICIPATORY OR DISTRIBUTED MANAGEMENT AND OWNERSHIP: GRUPO PAISANO8

Grupo Paisano was designed in 2013 as a sustainable agriculture fund that financed a group of companies capitalizing the entire supply chain - from producers to exporting companies - of different fruits and vegetables in Mexico. They work with more than 600 producers in three different Mexican states.

Grupo Paisano was designed to include all value-added processes and assets within the same holding group, and to distribute dividends to all involved, including producers and investors. The model was built on a structure called self-liquidating equity, which works like a reverse gradual cooperative. Instead of owning the whole company from the outset, producers start by owning very few shares of the company, but acquire more equity from investors over time, in a gradual process that takes over a decade to complete. The producers are grouped in Rural Production Society (RPS) companies which in turn are owners of a small part of the exporting company’s equity. Producers are paid for their commodities and also receive annual dividends from their shares in the exporting company. This allows for a structured exit, as ownership is transferred from investors to the producer community. This model was created by

Hector Martinez, who is now applying this experience, combined with a landscape approach, in Loom

Capital. He exited Grupo Paisano in 2019 so the model might have changed since then.

GUARANTEED PURCHASE ORDERS: TOKS AND SANTA ROSA MARMALADE

A women’s producer group in the state of Guanajuato sold their artisanal marmalade and other preserved foods only at local markets. They signed an agreement with the company Toks, after meeting them in an artisanal food fair. After they started producing for Toks, their income grew from $2,500

USD in 2001 to $350,000 USD in 2013. Some of the elements that have enabled their success were:

guaranteed purchases, capacity-building, capital for upfront support, quality systems and organization.

LUSH CORPORATION

Lush Corporation buys herbs and key ingredients from indigenous groups in the Sonoran Desert as a key input for their products. They hired Terra Genesis International as a Regeneration consultant and

TGI helped the company design projects and supply relationships for key ingredients that prioritize regeneration.

Under this partnership, TGI helped launch a SEED fund to give smallholder producers access to start-up capital to scale their permaculture projects. After working together for three years, Lush North https://www.uv.mx/redssss/files/2014/03/Grupo-Paisano.pdf https://www.uv.mx/redssss/files/2014/03/Grupo-Paisano.pdf

America continues to run the Sustainable Lush Fund supporting global supplies of regenerative agriculture. One of the initial key ingredients that they purchased from the Sonoran Desert could only be accessed by local indigenous groups.