The Harvest Contract Vehicle

About

Africa faces a booming supply deficit for fuelwood and industrial wood. Forest plantations are constrained by a lack of large-scale land, are expensive to establish, risky, and return little to local communities. The solution is smallholder farmers, who collectively have the land and labor to plant billions of trees via agro-forestry and small woodlots. But out-grower financing is challenging for existing financial instruments because of perceived risks, tenure issues, and long/irregular payment patterns. Out-grower contracts that increase in value over time are not recognized as having value or being suitable for balance sheet inclusion let alone considered an asset class.

Individual farmers cannot serve industrial wood markets alone. The central actor must be a vertically-integrated forestry company like Komaza that provides thousands of farmers support across the value chain. Farmers give Komaza the exclusive right to harvest and sell the trees, in return for a fair harvest price.

The Harvest Contract Vehicle (HCV) will purchase harvest contracts of successfully-established 1-year-old woodlots from implementing entity, Komaza. Once mature (10-20+ years, depending on species, growth & target products), Komaza will buy back the contracts (via a predetermined pricing algorithm) to then harvest, process & sell the wood. This facility would dramatically reduce the horizon for an operating company to recoup tree planting capital, allowing Komaza to plant many more trees.

By developing tree harvest contracts into bankable collateral, this innovation enables new financing for scaling up out-grower forestry with small farmers.