Choco4Peace

Sergio Figueredo | Founder and Executive Director | https://www.linkedin.com/in/sergio-figueredo/

Sergio Figueredo leads a multi-institutional movement that aims to support the construction of peace by empowering war victims in the cacao and agriculture sectors through innovative financial models, access to market, and disruptive technology. Sergio has over nine years of experience in business development, sales, finance and investment relations for international banks, non-profits, development finance institutions and NGOs. Sergio has developed, executed and managed an Impact Investment Matchmaking Platform (AXiiS) that attracted a pool of financial service providers (FSPs) with total assets under management of $6.4 Billion USD. He brings an academic background in Economics, International Affairs, and Project Management.

Choco4Peace works to enable vulnerable Colombian farmers to improve their lives by finding markets for their chocolate-producing cocoa, enabling them to escape poverty and conflict. Our social enterprise supports constructing and sustaining peace by generating positive socioeconomic and environmental outcomes in post-conflict regions of Colombia through the empowerment of women, youth, indigenous and other at-risk people in the cocoa sectors by providing access to markets, financial models and disruptive technologies.

There are approximately 65,000 cacao farmers in Colombia and of these farmers 90% are smallholders and 73% live below the poverty line, on $2 per day or less. Although the causes of poverty are complex, this is mainly due to a lack of access to markets and fair prices, education, finance, insurance, technology and inputs challenges, enhanced by the lack of a robust governance and policy framework. Colombian cacao producers face the additional dilemma of choosing between farming legal crops like cacao in poverty, or returning to coca production and cocaine as a means of survival. In Colombia, illicit activities have led to a vicious cycle of violence and poverty. Strong demand for cocaine bolsters the illegal armed groups which destabilize Latin American societies by undermining the authority of governments and the rule of law, and eroding transparency and the trust of citizens.

In Tumaco, in the district of Nariño, where our pilot program is located, 80% of farmers live below the poverty line and 74% of people who live there are unemployed, and as we have outlined, must often resort to illegal activity in order to survive.

Choco4Peace implements an integrated vertical value-chain in the fino de aroma cacao sector by connecting farmers with craft chocolate makers who pay them higher prices than the commodity price they would otherwise get from selling their cacao to the domestic market.

Blockchain technology, along with a system of smart contracts, is used to develop a decentralized inclusive economic network (DIEN) which aggregates cocoa farmers, chocolate makers, socially-oriented investors, private sector actors, governments, and NGOs. It's like a smartphone full of apps farmers need to connect with their buyers. 

In the case of access to markets, C4P identifies cocoa producers in hard-to-reach areas (post-conflict regions) with a digital cryptographic identity containing socioeconomic and demographic data such as household structure and income. The use of a supply chain application connects producers and buyers directly, removing middlemen and increasing revenues for the farmer. It also allows us to trace in a transparent way not only the origin and quality of the cocoa from farm to finished product, but also the socioeconomic and environmental impacts of production, consumption, and investment, in alignment with 6 UN Sustainable Development Goals (SDGs). These validated impact data facilitate access to markets and finance, and promote sustainable development.

There are approximately 65,000 cacao farmers in Colombia, 90% of whom are smallholders, and 73% live below the poverty line. Furthermore, the Colombian government has identified over 77,000 families who want to voluntarily remove coca, representing 100,000 hectares of plantations that could be transitioned to legal crops.

C4P has conducted fieldwork and signed agreements with 7 cacao cooperatives in 5 regions of the country representing about 1,000 farmers. We have selected 100 farming families in Tumaco, Colombia, who are war victims and ex-coca producers as test users, providing market access to prevent armed conflicts and cocaine production. Additionally, we secure a chocolate factory led by women. 

We also have partnerships with capacity-building NGOs that have long relationships with these cooperatives, in order to better understand their needs and deliver services effectively. In collaboration with our partners, we have conducted a baseline impact assessment of the pilot group against which to measure progress. C4P has spent two years raising awareness of the proven business model and technology, demonstrating that poverty reduction, saving the planet and creating prosperity are measurable impacts with economic value.

Global chocolate production is linked to several negative socioeconomic and environmental outcomes. Farmers at the beginning of the process in Colombia continue to face the impossible dilemma of either continuing to produce legal crops in poverty, or of reverting to illegal activity, such as affiliation with an illegal armed group or the production of cocaine, in order to survive. By supporting farmers in accessing the socioeconomic services they need, they can walk away from illegal activity such as the production of cocaine, restore the natural resources on which they depend, build peace in their communities, and build lives with dignity.

Sergio Figueredo and Co-Founder Matt Whiteman met in Montreal in 2016 while working for an organization that provided access to finance services for small and medium enterprises in sustainable agriculture and forestry in emerging economies. One of the key challenges in this field is in mobilizing finance to smallholder farmers, and collectively these small farmers around the world face a financing gap of approximately 500 billion dollars. Choco4Peace was born out of a research project with over 100 stakeholders, including SMEs on 3 continents, DFIs, second floor banks, NGOs and academia, on the relationship between extreme poverty and lack of access to finance and technology. While conducting this research, Sergio began to explore the potential for the use of disruptive technology as a way of mitigating investment risk, closing the agricultural financing gap, and building peace in the cacao sector in Colombia. Choco4Peace was founded on February 14, 2018. Happy Valentines for peace!

We have an opportunity to find harmony between business and the environment - to make the creation of social and environmental goods profitable pursuits. Yet our species continues to fall back into the same trap over and over again: conflict. Why do we keep doing this? I believe it is because people don’t have the right opportunities to succeed, to flourish, to build success on their own terms. This is a reflection of how fragmented our systems are. So much good work is being done - but it is done in silos.

Now we have found ourselves at the crossroads of food and technology. We have a clear example of a product that everyone loves, something that a 5 year old and a 90 year old can agree on - chocolate. And we have built a robust set of partnerships that can bring down some of these walls. We have an interesting solution to a complex problem, and we would like to share it.

I believe my unique profile, a combination of negotiation, project management and impact investments, is perfectly suited. My strategic analysis and international relations experience with various stakeholders, in emerging markets like Africa and Latin America, bring significant insight and depth of cultural knowledge to C4P.

As a Colombian living abroad, I witnessed from an early age the consequences of social injustice, poverty and war. Growing up, I believed in creating socioeconomic change and decided that a strong academic background was the key to fulfilling my dream.

With the war over, and Colombia as the newest member of the OECD, the world wants more Colombian products, investors want to move their business there. This inspired us to harness technology to address challenges that couldn’t have been overcome a decade ago. We can bring international attention to Colombia to end a vicious cycle of violence, drugs and conflict.

As an international economist and political scientist, most of my background and skills have been in understanding the financial context of investors and organizations looking for investments. Trying to close the financial gap in the agricultural industry has strengthened my ability to develop relationships as well as to improve negotiation skills with public and private organisations and governments.

This is reflected in our collaboration with over thirty employees, volunteers, and consultants across eleven countries who work collectively towards the same purpose: with agriculture, investments and technology we can create dignity, and build resilience in ecosystems and the communities that depend on them.

We knew for a pilot to be successful, we would need to work with a cooperative with high quality cacao and streamlined processes and procedures. Only one of the seven associations we visited met the standards we were looking for. Reaching that community was difficult because it is in a “red zone”, and the Canadian government didn’t allow us to travel there because of the safety risk. We built a relationship with the UN and the Colombian government in order to ensure our security, and with the association in Tumaco that was well connected with the producers so we didn’t go there as strangers. It was very important to me that we had a relationship based on trust. These people have been promised so much by the government and NGOs that were never delivered. People were also worried that our meetings might be attended by guerilla and narco spies, and so we had to be careful to speak to outcomes that would create better lives for everybody. This place had been at war for over 50 years, and I believe that convincing everyone that we had their best interests in mind required a lot of conviction, humility, and integrity.

I believe my ability to draw together disparate and complex elements of a problem and integrate them is the strongest testament to my leadership abilities. Because this company draws together so many disciplines: peacebuilding, finance, technology, chocolate, agriculture, I pay special attention to ensuring my team has an awareness of how each area of our work is connected to the other areas, and with this high level understanding, we are able to keep things moving toward our objective. More specifically, I believe that I have found an innovative application of a disruptive technology that can be used to create public goods in a field where there aren’t a lot of functional examples. I have systematically constructed my vision to create a coherent social enterprise approach. I believe the power of the idea we are putting forward is evidenced by the distance we have been able to cover without financing, with a team of 17, and a large network of partners ready to collaborate towards our objective.

The Decentralized Inclusive Economic Network (DIEN) is a smart-contract, private blockchain-based platform using a combination of decentralized applications. This platform brings together different actors in the ecosystem, allowing them to share reliable, immutable information. The DIEN records every transaction that takes place within the ecosystem, allowing stakeholders to trace not only the origins of the cacao as it moves through the value chain, but also the socioeconomic and environmental impacts of production, consumption, and investment.
Using the DIEN, C4P can demonstrate to investors that a farmer has access to a buyer, or to crop insurance, or that they are part of the Colombian government’s crop substitution program, or whether they have received capacity building or inputs to improve the quality and yield of their cacao.

Problem:
There are 65,000 cacao farmers in Colombia, 73% of whom live below the poverty line. Producers face the dilemma of farming legal crops like cacao in poverty or returning to cocaine production as a means of survival.

Barriers:
These farmers lack access to the markets, technology, finance, insurance, capacity building, and governance and policy frameworks they need in order for cacao farming to be a viable economic pursuit. Control of illegal groups who undermine authority of the government and bring a cycle of violence and poverty.

Interventions:
Choco4Peace operates an integrated vertical value chain that brings together cacao growers with international cacao/chocolate buyers. We have developed a Decentralized Inclusive Economic Network (DIEN), a blockchain-based digital ecosystem that integrates and delivers all the socioeconomic services a small farmer would need to succeed in one place. The platform also mitigates investment risk for prospective impact investors looking for bankable companies and wanting to pass on measurable impacts to their shareholders, facilitating the deployment of capital down to the bottom of the pyramid.

Outputs:
Farmers obtain a basic smartphone and are issued a digital cryptographic identity containing socioeconomic data such as family structure and business profile. A blockchain supply chain application connects producers and buyers, and allows us to trace in a transparent way the origin of the cacao and the socio-economic impact on producers’ households. This facilitates the deployment of financial mechanisms allowing them to receive payments, finance, and government economic assistance.

Outcomes:
Farmer level:
- Increase knowledge of the market
- Increase level of income
- Access to capacity building, finance, technology
- Lower risk of violence
Investor level:
- Decreased investment risk
- Access to bankable projects with traceable socioeconomic and environmental impacts
Ecosystem level:
- Scalable on the long term in other areas and countries
- Empowerment of minority communities (women, youth, indigenous producers)
- Use Colombian government crop substitution subsidies to crowd in private investment and fill the agricultural financing gap.

Impact:
By providing access to market, fair prices, technology and finance, farmers are able to lift themselves out of poverty, build peace in their communities, and build lives with dignity.

Our pilot project focuses on 100 farming families in the community of Tumaco in Colombia, with a specific focus on women and indigenous producers. We have signed expressions of interest from 1000 farmers from 7 cacao growing cooperatives in 5 regions of Colombia. Our objective is to scale to 1000 farmers within our second year, and to 60,000 farmers by year five. Beyond that, we are also exploring replicating our model in other cacao-producing Latin American countries experiencing armed conflicts (e.g. El Salvador, Honduras, Venezuela, Mexico).

To foster better social, economic, and environmental conditions for cacao producers who are ex-cocaine producers and war victims in Tumaco by increasing their access to international fair markets, technology, and other socioeconomic services. Specifically:

1. Identification and registration of at-risk cocoa producing families

2. Articulate a public-private partnership for the cocoa value chain in Tumaco, with purchasing contract mechanisms to favour national and international commercial penetration.  

3. Implement a traceability mechanism for the “fino de aroma” cocoa supply chain using blockchain technology

4. Establish a data-driven socioeconomic impact measure to inform decision making (Based on 6 of the SDGs)

In 2016, the government of Colombia negotiated a peace deal with the Revolutionary Armed Forces of Colombia (FARC), ending over 50 years of civil war.

But peace is fragile, and some FARC members took up arms again in August 2019, and this process only accelerated during the Covid-19 pandemic.

In the intervening period, the vacuum left by the FARC had been filled by a myriad of other armed groups. Those factions have pressured coca farmers to steer clear of the peace process’s crop substitution program, often at the barrel of a gun, and targeted regional activists who campaign in favour of the peace process’s provisions. Beyond the additional logistical and governance challenges, the peace process will require the blending of public and private capital in order to succeed.

Additionally, deployment of capital through the government’s crop substitution program has been slow and marred by corruption, further decreasing the trust of farmers. 

Lastly, COVID-19 has of course affected globally. For instance, cacao producers' lack of technology has further isolated them, unable to sell their products and neither receive economic humanitarian assistance.

This investment arena is cautious and capital flows are decreased, which is reflected in impact investments and start-up funding. 

We have been building relationships with networks of impact investors around the world and there is growing interest in a peacebuilding fund that would leverage public capital from the Colombian government as a way of crowding in private capital to support the transition from coca production to the production of legal crops such as cacao.

We have also strengthened our relationships with the ministry of agriculture, and the Presidential Adviser on Digital Transformation within the Colombian government, who are interested in seeing our solution brought to scale at a national level.

There are many different partners involved in the project who have different roles to play in order to concretize it, here are some of the key ones:

• Supplier: Asprocat/D'Origenn is a cacao farmer cooperative/trading association that provides cacao of consistent quality 

• Chocolate Factory led by women: Origen Cacao

• Main investor: Ark2030. The Ark2030 Foundation has the objective to unite private capital, global citizens/builders both corporate and individual to fund, at scale and pace, regeneration projects across 5 key ecosystems that in turn restore 500 million hectares globally through auditable and blockchain traceable UN certified projects.

• Blockchain companies: to build the blockchain platform and infrastructure needed by C4P, the DIEN.

• Assistance from the government of Colombia regarding the framework for cacao producers and the digital adoption and technical assistance. 

• Colombia Cacao Federation: FEDECACAO

• Various NGOs providing technical assistance and training

Our business model is centered around the commercialization of cacao as an economic incentive for farmers to walk away from illegal activity. Our second objective is around mobilizing access to finance to allow farmers to improve their quality and yield. We do this by providing farmers with access to an integrated set of socioeconomic services, using smart-contract blockchain technology to create an inclusive and decentralized economic ecosystem. This ecosystem aggregates cacao growers, investors and stakeholders, where cacao producers are provided with capacity building, finance, insurance, technology and certification services necessary to sustainably produce cacao and mitigate investment risk.

The revenue model will be based on three types of revenues in the short, medium, and long term, with Choco4Peace being the center of this platform.

1. Sustainable Supply Chain: Choco4Peace will charge a fee (%) for each kg of cacao or chocolate sold through the platform. 

2. Education: Cacao entrepreneurs will be provided with financial and technical training in order to enable them to achieve their objectives. Choco4Peace will charge a fee per training facilitated.

3. Platform: Every transaction made between the cacao entrepreneur and the investors will include a membership fee (%) that Choco4Peace will charge for the use of the platform.

The Choco4Peace revenue model also diverts a percentage of net revenues to a community fund to support education for children and community strategic development. Allocation of funds is based on consultation with our partner communities.

C4P is focused on three main streams of operating revenue:

1. Stream 1 will come from 2 sources

   1. C4P purchase of cacao from producers and delivery to chocolate producers with a markup of up to 50-75% above the New York Stock Exchange rate, the standard rate at which bulk cacao is traded.

   2. C4P produces chocolate in Colombia and sold to institutions such as boutique chocolate makers, universities, hotels, airlines and retails stores with up to 80% mark up. To this date, C4P has received purchase intentions from Air Canada, NASDAQ Stockholm and the University of Montreal.  

2. Stream 2 will come from 2 sources:

   1. a traceable transaction fee for use of C4P’s Blockchain platform. This will be done through the Decentralized Inclusive Economic Network (DIEN), a private consortium that operates as a marketplace with a 2-3% transaction fee that is paid by its members (e.g. chocolate makers, socioeconomic service providers and governments). 

   2. Chocolate makers will pay a 2-3% transaction fee on the final cost of cocoa.

Stream 3 will be fed by cocoa producers who participate in C4P sustainable trade and who are looking for access to tailored financial products based on their business profile and C4P’s operational costs. The interest rate for these products will vary from 8% to 10%, which is below market rates for most financial products available in Colombia.

We received an entrepreneurship grant from the government of Quebec worth approximately $13,000 USD.

We began generating revenue from chocolate sales to private companies and NGOs (<$5,000) before the COVID-19 lockdown disrupted global supply chains.

There are two broad categories of farmers we look to support. The first are those who are already producing cacao, who now need access to markets and finance in order to improve their income. This is the “accelerator” component of our model. The second group is those farmers who have volunteered to remove their coca crops and transition to legal crops like cacao. This is the “incubator” component of our model, and is more complex. Cacao trees take roughly three years to bear fruit from the day they are planted, and as such farmers making this transition require additional time and services to enable them to transform into cacao entrepreneurs - including agronomical inputs, technical assistance, capacity building, and additional financing.

Partnering with MIT and The Elevate Prize will allow Choco4Peace to engage in the process of building a peacebuilding fund to support. The Colombian government’s crop substitution program offers fixed subsidies for farmers willing to make the transition, but the amount offered is not sufficient to implement a full suite of sustainable cultivation techniques that would allow farmers to walk away from illegal activity forever. This process would require roughly $800m in additional capital to complete the transition for all coca farmers in Colombia. We have found a fund manager in Montreal who has expressed strong interest in supporting us to build this fund, and we require resources to initiate the process of building this fund.

The next stage of our evolution will include establishing a foundation to manage key activities such as investments in farming communities. We require legal support to establish a holding company, as well as the foundation.

We are also looking to broaden our network of impact investors and philanthropists with an interest in peacebuilding.