2023 was one of the hottest years on record and, if we’re to believe climate scientists, 2024 won’t be much different. While COP28 gave me reasons to be hopeful when it comes to the fight against climate change, we’re still far behind where we need to.

2030 is tomorrow. We’re past the point of small projects. We need large scale action, and I believe that smallholder agriculture and farmers are at the centre of that action. There are an estimated 600 million smallholder farmers across the globe who work on less than two hectares of land, making up about 84% of all farms. They play a critical role in food security and national and global economies.

Harnessing the power of these smallholders is a means to manage land use, wealth distribution, migration and refugees, food security, and the fight against climate change.

Meeting the Scale of the Challenge

I expect to see a shift in the coming year in large scale solutions led by both multinational organisations and more traditional investors to help develop more nature positive supply chains that integrate smallholders. Because most of the world is made up of these smaller farmers, it will be difficult but not impossible. It will require funding, technical assistance, and an inclusive approach.

And we’ve seen it at work. Through our returnable grants facility Rebuild, Palladium is supporting a local Kenyan coffee exporter Rockbern Coffee and Trabocca to source coffee directly from the Thiriku Coffee Growers Cooperative. The goal of this partnership is to deliver an innovative sourcing model that prioritises smallholder livelihoods and regenerates the coffee growing landscape in the region.

Both exporters are implementing a land rejuvenation program in the area that ensures that farmers receive a fair price for their coffee. The cooperative benefits from an offtake guarantee, assuring farmers of a higher price for their coffee; 40 shillings/kg more than the average market price.

More programs like these, at scale, are absolutely within our reach.

At the heart of this shift will be the European Union Deforestation Regulation (EUDR), which has taken effect for goods produced after June of 2023 and is going to really impact global commodity producers in developing countries. The regulation requires that companies that bring cattle, cocoa, coffee, oil palm, rubber, soya, and wood into the EU market and any products derived from these commodities, must conduct diligence to ensure the goods do not result from deforestation, forest degradation, or breaches of local environmental and social laws.

This means that companies not only must source from deforestation-free areas; producers (including smallholder farmers) will need to be able to prove it. This will require rigorous monitoring, reporting, and verification systems.

Meeting these requirements is difficult for even the most seasoned producers, and smallholder farmers will need proper support to do so. But for those who are able to meet regulations, it will open up huge markets, giving them the whole of Europe to sell to and an official means to show they have deforestation free commodities and supply chains. I’m hopeful that this is the first of many such regulations and that it will push other major regions to put similar laws in place that will allow for greater traceability across value chains.

As more cross cutting regulations and disclosures tighten up the market and force companies both big and small to clean up their supply chains, I expect we’ll see an increase in both finance and large scale – real – commitments from organisations.

If 2030 is a deadline, regulators are doing their part to challenge organisations to meet it.

Finance and Regulation to Support

These regulatory and finance sector shifts will inevitably lead to more innovation in the coming year. Investors are recognising that biodiversity and nature related losses represent a huge risk to their portfolios, and that there are vast opportunities to mitigate that risk through nature-based solutions and a focus on smallholders.

While in the past, climate investment has focused on tech and renewable energy, now we’re seeing nature and nature-based solutions take the centre stage as the essential role that nature plays is more widely understood.

The groundwork has been laid and it’s only a matter of time before we see how it all comes together.

As the carbon credit market grows and as nature and biodiversity credits gain traction, I expect we’ll see new funds and mechanisms to attract finance into nature restoration and more sustainable smallholder supply chains. Because ultimately, the two go hand in hand and smallholder farmers, as custodians of so much land and nature, must play a critical role in the coming shift.

For more, read 'Land, People, and Minerals: Mining Companies will Focus Outwards in 2024' or contact info@thepalladiumgroup.com.