COMPETITIVE APPRAISAL MATRIX

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, implemented by DAI, and do not necessarily reflect the views of USAID or the United States Government.

COMPETITIVE APPRAISAL MATRIX SOLOMON ISLANDS - STRENGTHENING COMPETITIVENESS, AGRICULTURE, LIVELIHOODS AND ENVIRONMENT PROGRAM (SI-SCALE)

CONTENTS

Executive Summary 1 SOLOMON ISLANDS 1 SELECTED SUB-SECTORS 2 COCOA 2 COCONUT 3 KAVA 3 METHODOLOGY 4 Competitive Appraisal Matrix – Findings & Analysis 5 TABLE 1: COMPETITIVENESS APPRAISAL MATRIX 5 COCOA 6 COMPETITIVENESS POTENTIAL 6 TABLE 2. COCOA EXPORTERS % SHARE OF EXPORTS 2020 11 SYSTEMIC IMPACT 11 FEASIBILITY AND SUSTAINABILITY 13 COCONUT 15 COMPETITIVENESS POTENTIAL 15 SYSTEMIC IMPACT 19 FEASIBILITY AND SUSTAINABILITY 20 KAVA 22 COMPETITIVENESS POTENTIAL 22 SYSTEMIC IMPACT 26 FEASIBILITY AND SUSTAINABILITY 28 Conclusion 31

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EXECUTIVE SUMMARY The Solomon Islands – Strengthening Competitiveness, Agriculture, Livelihoods, and Environment program is a comprehensive five-year project which advances economic competitiveness and inclusiveness in the agribusiness sector and improved management of the forestry sector in Solomon Islands. The Market Systems and Partnerships (MSP) activity focuses on strengthening and expanding the agribusiness sector in Malaita province through co-investing in private sector partnerships.

The purpose of this assessment was to prioritize two-three sub-sectors in the agriculture sector, which will be targeted through partnerships to expand production, improve value addition, and increase incomes for actors in the selected sub-sectors. The partnerships program will be further refined during the Partnership Opportunity Identification, where potential private sector partners and their concepts will be identified and refined through collaborative discussion and outreach.

SOLOMON ISLANDS

The Solomon Islands (SI) are located in the South Pacific and consist of six major islands and over 900 smaller islands. Due to its small size and highly dispersed population amongst its many islands, attracting investment to and fostering economic development in Solomon Islands is challenging. The nation is continuing to recover following an extended period of economic contraction due to civil unrest during the late 1990s and early 2000s. Although significant effort is made to design responsive agriculture sector policies and donor programs, agricultural extension and training services have limited or inconsistent reach to smallholder farming households, which rely heavily on agriculture for their livelihoods. Physical infrastructure, such as transportation and telecommunications, is challenging given the highly dispersed nature of this island nation, which creates a high cost of doing business and makes getting products to domestic and international markets expensive to businesses. Access to formal financial services and inputs are limited with smallholder households relying on informal groups to get services like savings and lending services, production information, and inputs.

Within this context, this assessment sought to identify where the greatest investable opportunities existed despite the steep challenges in Solomon Islands. The assessment looks to identify where resources could catalyze further development and increase incomes for smallholder farming households and other actors in the market system in Malaita. Sub-sectors that were considered needed to demonstrate consistent growth and anticipated growth potential of these markets, which could absorb increased and/or improved product from Solomon Islands, either in the domestic, regional, or international markets. Sub-sectors must have the potential for significant returns to actors in Solomon Islands as well as consistent investor interest and existing supply from Malaita. Due to the challenges of attracting new investment to Solomon Islands, sub-sectors identified need to feature potential partners currently active in SI who understand the risks of working in SI and have the business model and know-how to successfully navigate the operating environment.

SOLOMON ISLANDS’ AGRICULTURE SECTOR

Agriculture is a vital sector for the national economy and for rural livelihoods in Solomon Islands. Agriculture products and livestock account for and sustain 85% of the rural population in Solomon

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Islands1 with cocoa and processed oils (coconut and palm) representing the largest exports of agriculture products (not inclusive of aquaculture). The country is endowed with natural resources, consistent rainfall, and limited occurrence of cyclones, which position the agriculture sector to improve rural livelihoods across Solomon Islands, and specifically in Malaita. As noted above, although there are significant challenges attracting investment, there are ample opportunities to capitalize on when investors have the right risk appetite and experience working in similar contexts.

At the outset of the assessment, the following sub-sectors and cross market functions of the agriculture sector were broadly considered: cocoa, coconut, spices, kava, aquaculture, transport, storage, logistics, and input supply. In order to prioritize sub-sectors that already have some —if even limited— market linkages domestically and internationally, the initial list was further refined to the following four sub-sectors for detailed investigation: cocoa, coconut, kava, and aquaculture (specifically beche-de-mer). Spices were considered but were eliminated due to the poor reliability of supply and limited export market. Cross-market functions were considered to be too underdeveloped for this type of partnership facility and the available time period, but it is possible that these areas may be addressed in the Phase 3 Infrastructure Opportunity Identification activity where shortlisted projects will be recommended for consideration and support to Green Powered Technology and the Pacific-American Fund.2 In total, three sub-sectors were selected for further examination: cocoa, coconut, and kava. Due to challenges in data collection, beche-de-mer (sea cucumber) was ultimately not examined in detail although it had been initially shortlisted to be considered in this assessment.

It is worth noting that reliable, recent, and formal information sources were often limited, especially concerning statistics and data from Malaita. In the following phases of the activity – the partnership opportunity identification stage and call for concepts – the MSP team will seek to continue validating data collected and confirming important considerations such as target volume size for Solomon Islands exports of target sub-sectors, anticipated impact on rural smallholder farmers, sustainability and reliability of new revenue streams, and how best to incentivize actors to invest in Solomon Islands where risks are plenty and the cost of doing business is high.

SELECTED SUB-SECTORS

COCOA

The Solomon Islands’ cocoa industry currently makes up less than 1% of global supply. Currently cocoa bean exports from the Solomon Islands are stable and are recording between 4,400 – 4,600 MT per year grown by approximately 24,000 households (4,000 in Malaita), valued at approximately $8.94 million USD. Although SI’s cocoa industry is small and is currently a price taker in the global context, the sub-sector is relatively established, with consistent market linkages to international exporters and intermediaries, as compared to other sectors in the country. Exported products include both bulk

1 “Solomon Islands”, Pacific Horticultural and Agricultural Market Access Plus Program, https://phamaplus.com.au/where-we-work/solomon-islands/ 2 Green Powered Technology and the Pacific-American Fund will be co-funding grants for small and large infrastructure projects in Solomon Islands and will consider those in the agriculture sector. The Infrastructure Opportunity Identification will identify possible areas of interest for these two entities specific to the agriculture sector.


(lower quality) fermented cocoa beans and boutique (higher quality) fermented cocoa beans with limited further processing happening in country and limited to sales in the domestic market.

As detailed in the narrative below, the two significant opportunities for growth in the cocoa subsector concern increasing smallholder output volumes and improving value addition (fermenting and drying practices). The value-added processing opportunities are, however, captured by intermediaries or exporters rather than smallholder farmers.

COCONUT

The international market for the range of coconut products (copra oil, virgin coconut oil (VCO), and coconut based cosmetic products) has shown steady overall growth over the last four years. SI exports of coconut oil have fluctuated over recent years but remain an important contributor to the rural economy. SI remains a small supplier of coconut oil (VCO and copra oil) in the international market, representing less than 1% of global supply, but there are good growth prospects. Coconut oil from the Solomon Islands is currently exported to Switzerland, the Netherlands, New Zealand, and Australia. International demand is expected to continue to grow as consumers exhibit continued and increasing preferences for use of virgin coconut oil as an alternative and healthy cooking and baking ingredient.

Coconut has limited opportunities to expand yields based on issues related to aging trees and limited interest in investing into expanded production. The most significant investment in this sub-sector concerns value-added processing of copra oil and virgin coconut oil. Focusing on processing oil close to or at harvest site eases the burden of transporting whole nuts to market. The existing models in Solomon Islands for VCO processing, in particular, create job opportunities for smallholder producers and therefore value is dispersed across many actors in the sub-sector.

KAVA

Kava is a traditional beverage made by water extraction from the root of a species of pepper plant (Piper methysticum) and has been safely used by Pacific peoples for millennia for its mild relaxing effects. The current main target market for kava is other Pacific Islanders in the region and the diaspora community living abroad (including in Australia, New Zealand, and United States), which represents approximately 1.6 million people. International exports of kava from the Solomon Islands have increased steadily over the last ten years. Total volumes of kava exported were 14.7 MT and 18.1 MT in 2019 and 2020 respectively. In the first two months of 2021, kava exports are recorded at 8.4 MT, indicating similarly increasing levels for 2021.

Figures for Fiji and Vanuatu place the annual market to be 15,000 MT of dried kava equivalent in the Pacific Islands with approximately 2,000 MT being recorded as being traded internationally3. Although this amount seems small if comparing to bulk export products, the total potential income for kava is most easily compared to another non-bulk product such as vanilla (which has a similar price per kg), whose entire global market is less than 3,000 MT. Demand for Solomon Island kava within this market is increasing as the product is seen as a higher grade, higher value product compared to other products in

3 Pacific Horticultural and Agricultural Market Access (PHAMA) project, “Fiji Kava Value Chain Analysis”, https://phamaplus.com.au/wp-content/uploads/2018/06/Fiji-Kava-Value-Chain-Analysis-Report-FINAL.pdf


the region. Market sales of kava have increased approximately 14.3% annually absent of any government or donor intervention or support according to CEMA.

Extensive plantings of kava in Malaita over the past three years have resulted in a confirmed 990,000 plants in the ground, sufficient for ongoing production of approximately 600-1000 MT per annum, beginning in the 2022 season, should the current number of farmers replant as they harvest. The most significant potential for the kava sub-sector lies in its anticipated increase in production in the coming years, which simultaneously represents potential increased incomes and jobs creation for smallholder producer households in addition to intermediaries and exporters.

METHODOLOGY

The consultant team under this activity began the assessment by prioritizing sub-sectors within the Solomon Islands agriculture sector and areas of the market system for MSP’s focus. A strategic focus on priority sub-sectors and areas of the market system enabled MSP to concentrate limited resources on identified opportunities and gaps to achieve systemic impact. As part of this task, the consultants used the Competitive Appraisal Matrix (CAM) methodology to score and prioritize sub-sectors that offer the highest impact and a path to improving the Solomon Islands’ competitiveness and bringing economic opportunity to the Malaita Province. The consultants identified critical areas of the market systems that are holding back the growth and competitiveness of the three prioritized sub-sectors, as well as of high-value agriculture more generally, in Malaita.

The CAM served as a tool for the team to organize information, document findings and assumptions, and balance key considerations and priorities in evaluating sectors. The CAM scoring methodology uses a 1-7-point scale where 1 represents “poor performance/low potential” and 7 represents “best performance/high potential”. The CAM scoring process draws on a combination of quantitative (to the extent available) and qualitative data, and the assignment of scores relies heavily on expert judgment and analysis of available qualitative information. Numeric scores are meant to help the team compare opportunities to each other in a way that is consistent, transparent, and participatory, and provides a rationale that can be shared with a broader group of stakeholders. Specifically, the consultants:

• Used three overarching draft selection criteria, presented below, to assess potential sub-sectors –competitiveness potential, systemic impact, and feasibility of achieving results within the project timeframe.

• Developed analytical questions and data sources to inform the selection criteria. Quantitative and qualitative data were collected to inform each criterion and sub-criterion based on key informant interviews and secondary research.

• Utilized both qualitative interviews with key informants (experts, stakeholders, investors, donor projects) and quantitative data sources and secondary research (reports, prior sector assessments, global trade data analysis).

• The consultants summarized key findings for each evaluation sub-criteria in a brief narrative form. Once the analysis is completed the consultant team will use the CAM, shown in Table 1 below, to score and prioritize the sub-sectors and market systems area.

The results and analysis performed as described above are summarized in the below body of this report.


COMPETITIVE APPRAISAL MATRIX – FINDINGS & ANALYSIS TABLE 1: COMPETITIVENESS APPRAISAL MATRIX

Key Sectors and Sub-sectors

Com

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Ran

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Weights/Score (1-7)

40% 10% 5% 5% 10% 15% 40% 10% 20% 5% 5% 20% 10% 5% 5%

Cocoa 34.3 6.6 5.3 6.6 5 5.6 32.3 5.8 5.6 7 5.3 13.6 5.6 6.6 4.6 80.7 3

Coconut 33 5.3 5 6.6 4.5 6 34 6 5.6 7 5.6 14 5.3 6.3 5.6 81.7 2

Kava 33 6.6 6.3 6 6.5 4.3 38 6.2 7 5.6 7 14 5.3 6.3 5.6 84.7 1

Following the data collection and stakeholder outreach, the assessment team compiled the following CAM narrative to summarize the findings for each of the three sub-sectors under review. Based on these findings, each sub-sector was scored relative to how well the data presented addressed the competitive analysis matrix criteria and sub-criteria. Per the above table, the three sub-sectors were relatively close in their scoring with different elements rating higher for one (investor interest for cocoa and income generation and job creation potential for kava) or lower for another (investor interest for kava and benefits to sustainable development for cocoa) which speaks to the larger trends in each sector presented in the detailed narrative below. Kava was ranked highest with much of the higher scoring due to the perceived higher potential impact on producers and other groups within the sub-sector. Kava has significant potential to grow as a subsector, but currently does not have as many established linkages and investor interest.

Both cocoa and coconut sub-sectors have established market linkages to domestic and international buyers. As such, these two sub-sectors were ranked higher in terms of investor interest and supply chain linkages. Both sub-sectors also have significant value addition potential but, as stated above, this value is captured by fewer actors and is therefore considered less impactful from a development standpoint.


Overall, all three sub-sectors present strong potential opportunity for partnership with the private sector. In the following sections, each of the criteria and sub-criteria are applied to each of the three sub-sectors and their respective strengths, weaknesses, opportunities, and challenges are addressed in respect to the competitive appraisal matrix.

COCOA

During the course of interviews with stakeholders and desk research, it was determined that the best opportunities for growth and impact were improved quality bulk cocoa and boutique ‘bean to bar’ cocoa. The following section reviews the opportunities, challenges, and potential impact of investment in these two products in the Solomon Islands.

COMPETITIVENESS POTENTIAL

Expand domestic and international agribusiness trade

The Solomon Islands’ (SI) cocoa industry currently makes up less than 1% of global supply. Current cocoa bean exports from the Solomon Islands are stable and are recording between 4,400 – 4,600 MT per year grown by approximately 24,000 households (4,000 in Malaita), valued at approximately $8.94 million USD. Although exported cocoa beans represent approximately 1.4% of total foreign exchange from Solomon Islands,4 The Solomon Islands cocoa sector represents approximately 5.4% of the country’s gross domestic product56

4 “Solomon Islands”, OEC, https://oec.world/en/profile/country/slb?yearSelector1=exportGrowthYear25 5 “Cocoa Market System Analysis and Sector Strategy”, Strongim Bisnis - Australian Aid, p. 4. 6 “Cocoa and Coconut in the Solomon Islands: A Family Affair”, 2016, Pacific Horticultural and Agricultural Market Access (PHAMA) Program - Australian Government, Department of Foreign Affairs and Trade, https://phama.com.au/wp-content/uploads/2016/12/PHAMA-TR096-Solomon-Islands-Cocoa-Coconut-161213.pdf.

Figure 1: Strongim Bisnis Cocoa Industry Facts (AUSAID)


The international market for both bulk beans and processed cocoa is expected to remain strong. Historically, the global demand for cocoa has been steadily increasing between 2-3% but has recently seen a downturn due to Covid-19.7 Cocoa, traditionally considered a treat and consumed in restaurants or shops, has seen a decrease in global demand as consumers are not spending at the same levels and in the same ways due to lower incomes, travel restrictions, and limitations on dining and shopping.

The international market for boutique cocoa (“bean to bar”) beans has grown significantly over the last ten years and is forecasted to continue to grow despite the short-term impacts of Covid-19. According to Businesswire, key trends impacting this growth are the growing demand for specialty chocolates such as organic, vegan, sugar-free, and gluten-free chocolates,8 which are markets which boutique chocolate is oriented towards. Due to the emphasis on establishing improved and ethical supply chains and a preferred light fruity and floral flavor from chocolate from the Pacific Islands, there is interest in this sub-sector for good quality beans from the Pacific Islands. The majority of the cocoa sub-sector in Solomon Islands has historically been bulk cocoa beans of low quality, but over the last decade there has been an increase high quality beans serving the boutique market for artisanal chocolate built on brands that leverage Solomon Islands as a named origin. From zero such instances in 2010, there are now at least a half dozen product lines including FiretreZe, Solomons Gold, Puccini Bombini, Melt London, Luisa’s, Metiiso, Atypic, that rely on Solomon Islands as a chocolate origin in their branding, and two artisanal producers handmaking chocolates in SI.

World prices for fermented and dried cocoa beans are hinged first on London the NYSE-LIFFE and the New York ICE cocoa futures markets. Transaction costs are set between the buyer and the seller using the futures market costs to establish the contract and price but the final price is adjusted at the time of delivery, depending on the spot rate at the time. Premiums are also negotiated within these transaction to account for consistency, quality, and timing of delivery (on time, late, etc.).9 The current bulk price for cocoa is $2,238.41 USD per MT (the base price from which transaction specific premiums would be added) and the futures price for cocoa (the basis for future transactions) is $2,521 USD as of March 17, 2021.10

For low quality cocoa beans purchased in the Solomon Islands, buyers are basing farmgate prices on the market rate for bulk cocoa without premiums and less their operating costs and income. Buyers may offer higher rates for cocoa beans for improved and consistent quality as well as for fermented and solar dried beans, which are not tainted by smoke or other impurities. Current farmgate prices for low quality bulk cocoa (wet, unfermented) are $3.50 USD/kg while some buyers report paying as much as $4/kg USD11 for unfermented boutique cocoa beans. According to key informants, warehouse gate prices for dried and fermented cocoa beans is $11 USD/kg for bulk and $15 USD/kg for boutique. Export prices are based on individual contracts but, on average, export prices are approximately $15

7 “For Cargill Cocoa & Chocolate, the Impacts of COVID-19 are Widespread,” GAFSP, https://www.gafspfund.org/news/cargill-cocoa-chocolate-impacts-covid-19-are-widespread. 8 “Growth Trends and Forecasts”, Businesswire, May 23, 2019, https://www.businesswire.com/news/home/20190523005525/en/Global-Premium-Chocolate-Market-2019-2024-Growth-Trends-and-Forecasts---ResearchAndMarkets.com,. 9 SEO Amsterdam Economics, “Market Concentration and Price Formation in the Global Cocoa Value Chain”, https://www.tonysopenchain.com/resources/uploads/2019/03/2016-79_Market_Concentration_and_Price_Formation_in_the_Global_Cocoa_Value_Chain.pdf 10 Index Mundi, “Cocoa Beans”, https://www.indexmundi.com/commodities/?commodity=cocoa-beans. 11 Cathliro, “How We Export”,https://cathliro.com/pages/export.

https://www.businesswire.com/news/home/20190523005525/en/Global-Premium-Chocolate-Market-2019-2024-Growth-Trends-and-Forecasts---ResearchAndMarkets.com

https://www.businesswire.com/news/home/20190523005525/en/Global-Premium-Chocolate-Market-2019-2024-Growth-Trends-and-Forecasts---ResearchAndMarkets.com


USD/kg for bulk and $22 USD/kg for boutique cocoa beans. Compared with another neighbor in the region, Solomon Islands cocoa beans consistently gain higher prices than those from Papua New Guinea.

There is considerable potential to increase exports in both the bulk and boutique segments for cocoa beans from the Solomon Islands if there are further investments made to expand production (such as in planting or grafting of new cocoa trees) and improve the quality including adoption of improved production practices and use of solar drying in place of smoky fire dryers, which taint the cocoa beans.

Domestic consumption of cocoa beans and of processed cocoa products such as cocoa powder is very small and the opportunities to expand that market and increase demand remain limited.

Competitive advantage

When producers in the Solomon Islands can implement good agricultural practices and improved processing technologies, cocoa beans from SI can compete in terms of flavor and quality in the bulk and boutique international cocoa markets. However, two main aspects negatively impact the ability of producers to be competitive internationally – low volume of production and poor drying practices.

SI farmers can produce quality beans, but the existing cocoa trees are mostly old, and yields have declined. Current production is approximately 340 kg per hectare12 whereas yields in Cote d’Ivoire, the lead producer of cocoa in the world, yields average between 500-600 kg per hectare.13

Another significant barrier to the competitiveness of SI cocoa beans concerns issues in processing, particularly around poor drying processes which erode the taste and market value of the cocoa bean. Traditional bulk traders have depended on hot air drying (using fire powered sheds or pits) which involves smoke and taints the dried beans with smoky flavor. This lower quality processing eliminates any possibility of acceptance into higher quality subsectors. Improved technologies that do not require the use of fire for drying, such as solar driers, can have a significant impact on the taste and quality of the cocoa beans. Several projects, including PHAMA, are piloting new solar drying technologies (akin to solar greenhouses) to address this issue.14 When good agricultural practices are applied and solar drying technologies are utilized, SI producers are able to supply improved quality cocoa beans to buyers who are linked to bulk and boutique end markets in Asia, the EU, Australia, and New Zealand at a premium price.

Lower grade bulk chocolate (non-specialized boutique chocolate) is bought at lower prices and is destined for end markets in Asia like Malaysia and Singapore for use in processed products such as cocoa powder or milk chocolate products where flavor profile is not as important. These lower grade beans do not command premium prices and are not produced at high enough volume. Therefore, farmgate prices for smallholder farmers in Solomon Islands is poor.

12 Ibid., 11. 13 Marius Wessel, “Cocoa Production in West Africa, a review and analysis of recent developments”, Wageningen Journal of Life Sciences, December 2015, Volume 74-75, Pages 1-7, https://www.sciencedirect.com/science/article/pii/S1573521415000160 14 Australian Government, Department of Foreign Affairs and Trade, 11.


Although organic certification could potentially add further value to cocoa beans and gain access to new markets, the costs and expertise related to obtaining and maintaining certification are prohibitive to smallholder farmers and are not considered feasible for the SI context.

Enhance the quality of crops and value-addition of agricultural products

Quality of fermented, dried cocoa beans (destined for bulk or boutique markets) in SI requires improvement and there are several ways this could be facilitated by new/expanded commercial enterprises:

• Direct linkages between buyers/exporters of both bulk and boutique beans and producers to promote communication in terms of desired quality and to solidify consistent supply,

• Linkages with intermediary small enterprises that purchase wet beans (at buying depots closer to suppliers) and manage the drying process to ensure higher quality and consistent processing,

• Provision of tools and equipment to productive growers to improve harvesting and initial processing.

Solar dryers, along with fermentation boxes, provide the most significant potential for value addition. In the first phase of the PHAMA project, solar drier units were piloted using both improved and locally available materials. A unit that uses local materials such as bamboo in place of milled timber costs between $5-7,000 SBD (approximately $622-871 USD) whereas a unit with milled timber and improved materials was approximately $10,000 SBD (approximately $1,244 USD). Solar bubble driers (akin to greenhouses) are being piloted by PHAMA plus and cost approximately $14,500 SBD (or approximately $1,804 USD). Although the level of investment for an improved drying technology is relatively low, this cost is prohibitive for smallholder farming households or informal farming groups to invest in. However, for potential investors who are seeking to improve their supply chain, investments of this size could be assumed and would dramatically improve the overall quality of the dried cocoa beans.

Improve agriculture production capacity of selected high value crops

Expansion of cocoa production in Malaita and Solomon Islands hinges largely on improved agricultural practices such as pruning and increased yields through grafting and/or planting of new cacao trees. Private sector partners, such as processors, exporters, and specialty cocoa companies, have the potential to influence production through relationship building with producers to communicate quality standards, provide in-kind incentives to improve or maintain quality, and ultimately increase farmgate prices for better quality cocoa beans.


As mentioned above, current yields per hectare are nearly half of those in Cote d’Ivoire, the global leader in cocoa production. This reduced yield is mainly due to aging trees and poor/limited adoption and use of good agricultural practices in cultivation of cocoa. Despite donor and government investment in trainings, many smallholder farmers are not consistently applying good agricultural practices and do not have access to the expertise, inputs (new saplings or grafting materials), and equipment (pruning equipment, fermentation boxes, or dryers15).

After planting, cacao trees can produce pods within five years and have a peak productive life of approximately ten years.16 Grafted seedlings to existing cocoa trees see an accelerated productive cycle, growing fruit within 18-24 months.17 Therefore, investments into the replanting or grafting of cacao trees will increase yields but are longer term investments.

Improved production and harvesting practices for both new and old trees can also improve yields and quality of cocoa beans. Proper pruning of cacao trees following harvest ensures that the plants are not too shaded, which lowers temperatures and restricts yields. Cacao trees are sensitive to temperature and moisture and maintaining the right shade helps to increase productivity of trees and prevent rotting and disease. Regularly removing and clearing organic material (leaves, sticks, or other natural waste that might accumulate) at the base of cacao trees also helps to reduce rotting, pests, and disease.

Information sharing and potential in-kind incentives to farmers could be led by private sector firms in the absence of formal government extension programming and ensure more consistent and improved supply of cocoa beans.

Strength of investor interest

Despite potential for expanded and improved supply of cocoa beans for bulk and boutique markets, there is limited foreign investor interest in the cocoa industry in the Solomon Islands due to low volumes of production. Potential investors are mainly small- and medium-sized private sector firms (traders, exporters, processors) who have commercial interest in improving their sourcing and supply chain for export to bulk and boutique cocoa markets.

Table 2 presents cocoa exporters and their percentage share of total export in 2020. The 19 companies vary in business size, management, ownership, and supply chain. Total export volume for 2020 was slightly above 4,300 MT. Two major contributors are Solomon Commodity Export LTD and CCS LTD with both making up for 1,775 MT or about 41% of the total export. Both companies, along with Tradecom LTD, are foreign owned with local management teams. They do not own/operate a cocoa farm but have access to financing for working capital allowing them to buy wet and dried beans from farmers. They also invest at the farm level (supplying farm inputs including seedlings) with a strong presence in Guadalcanal and Makira Provinces. The remaining exporters individually aggregate as agents

15 Fermentation boxes or dryers are often not used at the farm level who are selling wet beans but for farmers looking to add value and sell fermented and dried bean, this could be considered appropriate equipment. 16 Frank Robles, “About the Cacao Tree”, Chocolate, August 2017, https://www.chocolate.org/blogs/chocolate-blog/about-the-cacao-tree#:~:text=It%20takes%20about%205%20years,7. 17 Redacion, “Propagation by grafting: technology in favor of greater and better cocoa”, Viva el Cacao, 2016, https://vivaelcacao.com/en/propagacion-por-injerto-tecnologia-a-favor-de-mayor-y-mejor-cacao/.


for a Sydney-based International Commodity Trader (Holland Commodities International PTY LTD). Export volume and price is based on individual contracts between Holland Commodity and the exporters. Holland Commodity operates a warehousing system in Honiara for the aggregation of exported cocoa beans. The company takes up all export-related costs from its warehouse to the export destination.

There are four exporters of Solomon Islands cocoa beans into the bulk market and they include (1) Holland Commodity (through its agents), (2) Solomon Commodity Export Limited, (3) CCS LTD, and Tradecom LTD. Holland Commodity is the largest player in the Solomon Islands cocoa sector.

The three main companies exporting cocoa beans into the boutique market are (1) David Kebu Family Cocoa Association (2) CATHLIRO Cocoa Dev. LTD and (3) TupaGhotua Cocoa Plantation (an old SIG cocoa research plantation). Total export into the boutique market makes up about 2.7% of total cocoa exported in 2020. All three exporters are from Guadalcanal and are currently sourcing from their own farm (David Kebu and Tupaghotua) and wet beans from its cluster of farmers (CATHLIRO).

TABLE 2. COCOA EXPORTERS % SHARE OF EXPORTS 2020

EXPORTER YTD (MT) %

ST Exporter 510.000 11.63

OBO Export Agencies 130.873 2.99

Solomon Commodity Export Ltd 935.000 21.33

Pinihimae & Associates Group 52.251 1.19

SMD Corporation Ltd 86.251 1.97

Tradecom Ltd 180.000 4.11

Tupaghotua Cocoa Plantation 35.125 0.80

Chan Wings Ltd 245.325 5.60

P-Tech & Pro Services 183.000 4.17

Totogi Enterprises 275.000 6.27

Jamcop Co. Ltd 132.500 3.02

David Kebu Family Cocoa Association 69.000 1.57

Arania Enteprises Ltd 0.000 0.00

Happy Cocoa Enterprise 191.000 4.36

CATHLIRO Cocoa Dev. Ltd 16.000 0.36

Martin & Brothers Enterprises 30.000 0.68

Solfresh Products 180.000 4.11

Unity Cocoa Enterprises 292.500 6.67

CCS Ltd 840.000 19.16

TOTAL 4383.825 100.00

Overall, the majority of private sector players and current investors in the cocoa sector export into the bulk market as agents of international traders and or as international traders themselves.

SYSTEMIC IMPACT

Potential link to Solomon Islands and Malaita agribusiness and cooperatives to regional and international markets


An expansion of the cocoa industry in SI would focus on the export market given the limited domestic demand for cocoa bean. Exports to other Pacific Island countries would be minimal given current levels of production of cocoa in the region which are also primarily oriented towards export (limited domestic markets), with the exception being limited sales to the small cocoa processing operation in Fiji. Current export to the Pacific Islands region accounts for less than 1% of total exports and is destined only for Fiji.18

Small scale agribusiness ventures and cooperatives in Malaita producing bulk cocoa are unlikely to have direct linkages with overseas buyers – the existing export channels through the large international traders would be maintained for the first few years. Those selling to the boutique market segment, on the other hand, are more likely to have close relationships with international buyers who usually visit suppliers every 1-2 years to verify the supply sources and quality control. This type of exposure to overseas customers will be beneficial to suppliers in Malaita in terms of understanding international buyers’ requirements and expectations.

Income generation potential and job creation

There are approximately 4,000 households in Malaita involved in the growing and sale of cocoa. Estimated number of smallholder farming households is approximately 24,000 in Solomon Islands and approximately 4,000 smallholder farming households in Malaita, according to the 2017 SIG census. Increased production volume for smallholder producers in Malaita could provide income opportunities for these approximately 4,000 households in Malaita.

Formal job creation would be relatively small as value addition will not increase number of employment opportunities but improvements of quality and processing along the existing value chain. If commercial seedling nurseries are established this could provide 10-20 full time jobs per operation; and a small processing operation would employ 6-8 workers. The more successful cocoa growers are likely to employ contract laborers during busy periods but for most suppliers, especially on smallholder farms, the family members will continue to work on the farm.

Economic opportunities for women

Over 75% of women in SI are engaged in subsistence agriculture and for those women in the more remote rural areas of Malaita there are very few alternative livelihood opportunities. Although women are involved in the cocoa value chain, they are often relegated to supporting the production side while men dominate the processing, marketing, and price negotiation stages, and therefore have limited control over how money is spent and are less likely to receive training from donors or agricultural extension (formal or informal).19 Women play a role in the maintenance of the family farm plots and while work is informal, there are anecdotal cases where payments are made for short term contracted work, but in most cases, it is unpaid. Given the above, it is anticipated that investment into the cocoa

18 “Solomon Islands”, OEC, https://oec.world/en/profile/country/slb?yearSelector1=exportGrowthYear25. 19 “Cocoa and Coconut in the Solomon Islands: A Family Affair”, 2016, Pacific Horticultural and Agricultural Market Access (PHAMA) Program, https://phama.com.au/wp-content/uploads/2016/12/PHAMA-TR096-Solomon-Islands-Cocoa-Coconut-161213.pdf.


sector would not have as impactful benefit to female workers or entrepreneurs compared to other sectors.

FEASIBILITY AND SUSTAINABILITY

Private sector dynamism and strength of business support ecosystem

There are relatively few effective and formal industry associations that can impact good governance and provide practical assistance to farmers. The national business chamber’s membership comprises mainly of larger businesses and has almost no outreach to rural suppliers. A national cocoa industry association meets only infrequently and is not pro-active in the industry. However, an informal national cocoa industry working group has been pro-active and having frequent meetings.

There are informal farmer associations operating in several provinces, including Malaita. Most of these associations are self-sustained and arise from projects established by donor programs or NGOs and they can play a useful role where appropriate.

There are no service providers in Malaita who regularly incorporate good corporate governance practices. The bulk of the accountants in the country operate in Honiara and provide basic (and often poor quality) services. A program is underway to accredit most local accountants, but this will be a slow process and is unlikely to have tangible impacts in Malaita for some time. In the meantime, tax compliance remains an issue for the government.

Access to appropriate and affordable finance is very difficult for smallholder farmers producing cocoa. The commercial banks are not interested in this potential customer base and have a risk adverse attitude to agriculture-based businesses. On the producer side, familiarity with available financial products is limited and ability to demonstrate or provide tangible assets is difficult. There is no national microfinance institute and the one provider has no presence in rural areas in Malaita.

Extension services by the Ministry of Agriculture and Livestock are recognized as either very poor or absent from the market. The provision of services and technology is hampered by chronic underfunding, lack of field mobility, low morale, and an erosion of technical know how. Existing ventures established their own farmer networks and new ventures in the cocoa sector would need to rely on internal or directly linked extension services to farmers to ensure a reliable supply chain.

There are several donor-funded programs in the Solomon Islands providing technical and funding support across the cocoa sector to smallholder farming households, intermediaries, and traders. The following are the donors, projects, and areas in which this funding is intervening in the cocoa sector in the Solomon Islands:

• Government of Australia, DFAT (AUSAID)

− Strongim Bisnis - All activities are based on the partnership between Strongim Bisnis and the private sector company involved in aggregating for domestic and export market. Partnership for product diversification has started while partnership for a small-scale commercial hybrid seedling and a sun-drier facility is currently negotiated. All cocoa interventions to date were with aggregators based in Honiara.

− PHAMA Plus - The current phase of the program focuses on post-harvest processing (to improve quality - i.e. reduce smoke), supporting a private sector company (CATHLIRO) to diversify into


cocoa products (cocoa powder, chocolate bars, etc.), and supporting a cocoa bean aggregator at the processing level in establishing a small-scale commercial nursery for hybrid seedlings.

− SICCI Export Market Access – Purpose of the project is to provide members of the Solomon Islands Chamber of Commerce & Industry (SICCI) with export market access information and referral to appropriate technical departments within SIG. The support also funds a position within SICCI to provide secretariat functions for the cocoa, coconut, and horticulture (kava included) industry working groups.

• Solomon Islands Rural Development Program (RDP) – IFAD, EU, DFAT, and World Bank funding

− The RDP has the most coverage of the whole country as it works across all wards under its community infrastructure component. The second component of the program focuses on improving the agribusiness value chain through a partnership between MAL (implementing partner for the component) and private agribusiness sector companies. The majority of activities under the cocoa and coconut partnerships are in Makira, Guadalcanal, and Western Province. There are limited partnership activities in Malaita including two in cocoa. RDP support to the agriculture component is in its completion phase and will end in February 2022.

Alignment with SIG and Malaita Provincial Government of priorities

Increasing the production and export of cocoa is in alignment with SIG and Malaita provincial government priorities.

In the National Development Strategy, cocoa is included in its strategy to increase the production of commercial export crops. The Medium Term Strategy 1: Reinvigorate and increase the rate of inclusive economic growth notes that commercial export crops, including cocoa, are a main contributor to the SI economy and increase cash incomes for rural households.20

Cocoa is included in the Agriculture Sector Growth Strategy & Investment Plan – 2021-2030 as a priority high value crop. According to the most recent draft of the plan, the cocoa industry sub-program has the objective to achieve, “Increased exports and domestic use of high quality cocoa and its products from sustainable cocoa farming systems with increasing profit margins for farmers in collaboration with private enterprises.”21 SIG will be updating its coconut strategy for the 2021-2030 period and expects to focus on the following areas: (1) improving sector governance and provision of capacity building support, (2) increasing cocoa productivity, (3) improving quality of cocoa processing and value addition, (4) provision of technical advisory services to farmers, and (5) support to the sector on marketing and trade, namely through access to finance activities, support sector in achieving cocoa certification programs, and market diversification activities.

20 “National Development Strategy – 2016 to 2035”, Ministry of Development Planning and Aid Coordination - Solomon Islands Government, p. 16, April 2016. 21 “Agriculture Sector Growth Strategy & Investment Plan – 2021-2030”, Solomon Island Government – Ministry of Agriculture and Livestock, 2020, p. 86


Finally, in a concept note summarizing the rural processing centers proposal, the Malaita Provincial Government includes cocoa as a top priority export market product.

Benefits to sustainable community-driven development

The proven model for successful cocoa supply chain arrangements involves close involvement with, and support for, families and communities involved in the cultivation of cocoa on their own land. No large-scale plantations are likely to be established and this will reduce the risk of unacceptable outside involvement in the sector.

The approach will therefore involve harmonious relations within the community and, provided farmers believe they are receiving a fair return for their efforts, it is highly unlikely that will be social discord.

COCONUT

During the course of interviews with stakeholders and desk research, it was determined that the best opportunities in the coconut sector were for copra oil and virgin coconut oil.

Copra oil is lower-grade coconut oil that is produced from the copra, or dried coconut flesh, of the coconut. Copra oil is a refined oil with less coconut flavor and a pure white appearance and is commonly used to manufacture soaps, detergents, shampoos, synthetic rubber, and glycerin. After refining to remove free fatty acids and deodorizing, copra oil is also used in edible fats such as margarines and vegetable shortenings. Virgin coconut oil (VCO) is a higher-grade unrefined oil made from the fresh meat of the coconut. VCO, is off white and has a less consistent appearance with coconut particles within the oil but maintains more health benefits including antioxidants and polyphenols.1 Direct Micro Expelled oil, a method of VCO processing taking place in the Solomon Islands that is also referenced in the following section, is a technology that has small-scale processing plants close to the harvest points where virgin oil and meat are extracted from the nut1 soon after harvest, reducing transportation costs of shipping entire coconuts to a centralized processing plant.

The following section reviews the opportunities, challenges, and potential impact of investment in these two products in the Solomon Islands.



The international market for the range of coconut products (copra oil, virgin coconut oil (VCO), and coconut based cosmetic products) has shown steady overall growth over the last four years. SI exports of coconut oil have fluctuated over recent years but remain an important contributor to the rural economy. Coconut oil exports represent 1.39% of total exports as of 2019, while wood, processed fish, and aluminum ore together make up 84.1% of total exports from the Solomon Islands.22 In SI there is a relatively small domestic market for these products, which is already supplied by local producers.

22 “Solomon Islands”, OEC, https://oec.world/en/profile/country/slb#:~:text=Product%20Trade,-%23permalink%20to%20section&text=In%202019%2C%20Solomon%20Islands%20exported,163%20exporter%20in%20the%20world.


Accordingly, there is limited scope for significantly increased sales within the domestic market.SI remains a small supplier of coconut oil (VCO and copra oil) in the international market, representing less than 1% of global supply,23 but there are good growth prospects. Coconut oil from the Solomon Islands is currently exported to Switzerland, the Netherlands, New Zealand, and Australia.24 International demand is expected to continue to grow as consumers exhibit continued and increasing preferences for use of virgin coconut oil as an alternative and healthy cooking and baking ingredient25 and prices are likely to remain buoyant over the next three years. There are also opportunities for a wide range of coconut products – ranging from whole, de-husked coconuts for retail sale, to by-products such as vinegar, activated carbon from shells, and cocopeat. For the purposes of this analysis, the greatest opportunities for growth and value addition remain in the coconut oil value chains.

Overall growth for the global coconut sector is projected to more than double in the next five years.26 CEMA data shows that VCO demonstrated an average export growth rate of 56% over the last three years to 2020. According to CEMA data, VCO export values fluctuated with value growing by 123% in 2018, down 16% in 2019 but increased by 15% in 2020. Although global demand for VCO and copra oil increased during this same time period, volume of exports fluctuated based on Solomon Islands supply. Furthermore, according to CEMA data export value for copra oil increased by 19% in 2020.


SI has extensive coconut plantations in Malaita and, despite the growing percentage of senile trees, has the capacity to increase exports and smaller volume sales in the local market. In 2013, it was estimated

23 Ibid. 24 Ibid. 25 “Coconut Products Market Study 2019-2026 – World Market Projected to Cross $31 billion by 2026,” Research and Markets, https://www.globenewswire.com/news-release/2020/02/21/1988574/0/en/Coconut-Products-Market-Study-2019-2026-World-Market-Projected-to-Cross-31-Billion-by-2026.html 26 Ibid.

Cocoa18%

Copra14%

Palm & Kernel Oil

56% Coconut Oil

12%

Composition of Agriculture Exports (2018)

Cocoa Copra Palm & Kernel Oil Coconut Oil

Cocoa26%

Copra19%

Palm & Kernel Oil

54%

Coconut Oil 1%

Composition of Agriculture Exports (2010)

Cocoa Copra Palm & Kernel Oil Coconut Oil

Figure 2: ASGIP, 2020


that over 60% trees in the nearly 60,000 hectares of coconut groves were senile and past their peak production.27 Although yields of coconut trees can be improved through application of fertilizer or use of cover crops (green manure), aging trees will continue to see reduced yields of nuts over time once they are past their prime growing age and replanting is necessary. Smallholder farmers producing coconut tend to shy away from investing in agricultural inputs or replanting because of financial constraints and the existence of government and donor programs which incentivize replanting (and therefore de-incentivizes using one’s own resources).

The competitive impediments in Malaita include underdeveloped infrastructure, limited road networks east to west (which limits market access for many farmers), no export port, and limited processing operations in Province production of oil or other coconut products, which could help to reduce transportation costs. The farmers can, however, be productive when offered acceptable prices for their output and the province provides around 70% of the VCO exported by SI, according to CEMA export data.

The competitive advantages of the SI coconut sector include:

• High levels of production – Despite the challenges presented by the increasing number of senile trees, there is an excess of supply of nuts throughout the country. Most nuts are collected on the ground and large numbers remain in place.

− Copra: 11,768.134 MT (Malaita produce 5.72%)

− Coconut Oil: 5,250 MT

− Coconut Cake: 2,714 MT

− Virgin Coconut Oil: 87,449 MT28

• Purchase price – The farmgate purchase price of nuts in the Solomon Islands is low compared to farmgate prices in other neighboring countries, which is an advantage to international buyers. This flows on to the end price for processed coconut products. Average export price for VCO is $3.50 USD/kg with average farmgate purchase price at $2.64 USD/kg. Copra oil, which is aggregated and processed by intermediaries or exporters, has an average export price of $1.10 USD/kg and farmgate purchase price of coconut well below $0.50 USD/kg.

• Proximity to target markets – Shipping times to key markets in the region (Australia and New Zealand) are short given close proximity to end markets with regular and adequate shipping services between the west coast of Malaita and the export port in Honiara.

27 Tome and Sura, “Solomon Islands Country Report”, FAO, November 2013, http://www.fao.org/fileadmin/templates/rap/files/meetings/2013/131030-solomon.pdf 28 CEMA, Export Data


• Strong reputation – SI is regarded by customers of virgin coconut oil as a reputable and socially ethical source, which is an important competitive advantage in this market segment.

The negative factors that have inhibited exports of coconut products from SI include the high costs of doing business in this small economy (including high cost and unreliable power), inadequate road infrastructure that makes it difficult and expensive for farmers to access markets, and under-developed coastal sea transport facilities such as wharves and road linkages. The primary competitiveness constraint relates to supply chain shortcomings stemming from the poor transport infrastructure and the lack of rectification measures over recent decades.

With a stronger supply chain SI can compete in the international coconut oil market and increase exports. Investment in replanting trees, improved processing facilities, and increased adoption of improved agricultural practices can help to increase yield copra oil and VCO.


Supply chain improvements would enhance the quality of coconut products in SI, including:

• Improvements in the processing of copra oil by farmers/villages would result in both increased orders and good margins for traders. Most copra is dried by the farmers using timber or coconut shells for heat. Smoke affects the copra and inadequate drying and storage results in a tainted product. Improved drying tunnels, adequate amounts of suitable bags, training, and a reliable delivery point close to drying operations could improve overall quality.

• Replanting coconut trees would ensure consistent longer-term supply of quality nuts for processing. Currently, more than 60% of coconut trees in the Solomon Islands are senile with declining production. Replanting senile trees would result in higher yields in approximately 3-5 years and ensure long-term supply for producers.

• Increased processing units for the production of virgin coconut oil provides a significant value addition to farmers currently producing whole coconut or copra oil.


Malaita has around 1.2 million coconut trees, of which slightly over 250,000 are located on homestead land according to the 2017 census performed by SIG. Approximately 60% of these trees are senile and are supplying decreasing volumes of quality nuts. Of the 4,700 tonnes of harvested coconuts, only 900 tonnes were reported in 2017 as sold – this indicates that the majority of harvested coconuts are used in home consumption and animal feed.

Commercial enterprises involved in the international trade of coconut products could address the pending shortfall and invest in replanting projects in conjunction with community groups, but it is not clear if there is sufficient financial incentive for exporters to serve in this role. New hybrid varieties can produce nuts in 3-4 years and are easier to harvest because of their smaller size. This would have a significant impact on production capacity and harvesting for sale.


There is ongoing investment into the coconut sector from the private sector as well as a long history of government and donor investment. Within the coconut oil sector, there are two dominant actors – SI


Commodities Private Ltd. exporting approximately 5,180 MT of copra oil and Kokonut Pacific Solomon Islands Ltd. (KPSI) exporting approximately 93 MT of virgin coconut oil. A third smaller player, Coconut Bio-energy, exported approximately 13 MT of copra oil from the Solomon Islands. These companies are actively involved in the coconut value chain, investing in further value addition along their supply chains as well as some product diversification destined for the local markets in SI.

Notably, KPSI has invested in the establishment in DME units in the Solomon Islands in order to improve the quality of their product, guarantee steady supply chains, and increase incomes for producers.29 These units are located close to harvest points and are small, decentralized processing operations whereby copra is processed same day at the facility. These facilities provide employment opportunities in rural areas to both men and women. Although copra and copra oil production are largely dominated by men, DME units allow for employment opportunities for men and women.

Feedback collected from key informants noted that there are ongoing investment projects to expand storage facilities and reduce transportation costs in Malaita.

SYSTEMIC IMPACT

Potential link to Solomon Islands and Malaita agribusinesses and cooperatives to regional and international markets

There are existing supply linkages between Malaita and Honiara and international markets. Coconut oil is currently exported from the Solomon Islands to end markets in Switzerland, the Netherlands, New Zealand, and Australia. Greater efficiencies in transportation and processing could support gains in cost savings within this established supply chain.

Sales to other Pacific Island markets would not be large but one SI business is already selling retail packed VCO oil products to PNG and there are similar (but limited in volume terms) opportunities elsewhere in the region. Australia and New Zealand represent a good market for VCO products in several market segments and Solomon Islands sourced products are already distributed in retail outlets throughout the two countries. Coconut oil products from the Pacific Islands appeal to consumers in these markets, and the linkage with social outcomes has been particularly effective.


The majority of households in SI have access to coconuts from trees on homestead or communal land. The mature coconuts are usually collected after falling from the tree and used for home consumption or for sale in the local produce market. There are, however, around 15,600 households (the equivalent of 57,000 people) in Malaita (source: agriculture survey 2017) which report they grow coconuts as a crop, and these would be the early beneficiaries of an expansion of the sector.

29 “The Copra Problem & DME Solution”, Kokonut Pacific, https://www.kokonutpacific.com.au/the-copra-problem-dme-solution


The coconut sector offers a range of income opportunities for farmers and households. These opportunities include:

• Sales of whole coconuts to a processing facility with pre-arranged roadside pick up by truck. This is the simplest form of income generation and women can be the primary beneficiaries.

• Sales of copra to traders for either direct export or for processing into oil in-country prior to export.

• Production of DME oil for sale to local businesses involved in this market segment. These buyers will generally provide the required equipment (including hand presses) and training and pay for the liters of oil supplied at the required standard.

In addition to the increases in household incomes there will be improved full and part time job opportunities. These will include employment by core investors to handle transport, logistics, processing, and management both in Malaita and in Honiara.

Local supply chain linkages

The required supply chain linkages have been outlined above and these would have a number of indirect benefits:

• A model for other agriculture related businesses in SI that could be successfully replicated in other provinces and sectors.


Although coconut production does not traditionally provide significant employment opportunities to women, the expansion of virgin coconut oil processing could create jobs for women in DME units and in marketing of the product. Women would also fill important roles in other centralized processing operations for copra oil and beyond but there are fewer opportunities than provided by decentralized DME units located in rural areas.



There are relatively few effective industry associations that can impact good governance and provide practical assistance to farmers. The national business chamber’s membership comprises mainly of larger businesses and has almost no outreach to rural suppliers. A national coconut industry association meets only infrequently and is not pro-active in the industry.

The only service providers in Malaita that regularly incorporate good corporate governance practices to VCO producing groups are the social enterprises who are also their buyers and exporters.

Access to appropriate and affordable finance is very difficult for SMEs. The commercial banks are not interested in this potential customer base and have a risk adverse attitude to agriculture-based businesses. There is no national microfinance institute and the one provider has no presence in rural areas in Malaita. Larger businesses with acceptable collateral may be able to access credit and the full range of international banking services.


Extension services by the Ministry of Agriculture and Livestock are recognized as either very poor or absent from the market. The provision of services and technology is hampered by chronic underfunding, lack of field mobility, low morale, and an erosion of technical know how. New ventures in the coconut sector would need to rely on internal or directly linked extension services to farmers to ensure a reliable supply chain.

There are several donor-funded programs in the Solomon Islands providing technical and funding support across the coconut sector to smallholder farming households, intermediaries, and traders. The following are the donors, projects, and areas in which this funding is intervening in the coconut sector in the Solomon Islands:

• Government of Australia, DFAT (AUSAID)

− Strongim Bisnis - All activities are based on partnerships between Strongim Bisnis and private sector companies involved in value addition and product diversification. Strongim Bisnis has a partnership with a private sector company working in coconut who has a partnership agreement with an Australian-based company to produce value-added products using the recipe provided by the Australian company. These products are for both the local market and for export. Another partnership is looking at the development and production of coir from coconut husks for hydroponic farming use. Other partnerships Strongim Bisnis have focus on improving the quality of crude coconut oil. Strongim Bisnis also partners with Biosecurity Solomon Islands (MAL) in their work to contain the spread of the coconut rhinoceros’ beetle.

− PHAMA Plus - The current phase of the program intervenes in the coconut sector by supporting organic certification for coconut farming groups and a coconut plantation. PHAMA Plus also co-finances part of KPSI costs for maintaining its organic certification. PHAMA Plus will end in March 2022.

• Solomon Islands Rural Development Program (RDP) – IFAD, EU, DFAT, and World Bank funding

− The RDP has the most coverage of the whole country as it works across all wards under its community infrastructure component. The second component of the program focuses on improving the agribusiness value chain through a partnership between MAL (implementing partner for the component) and private agribusiness sector companies. The majority of activities under the cocoa and coconut partnerships are in Makira, Guadalcanal, and Western Province. There are limited partnership activities in Malaita including one in copra oil and three in VCO. RDP support to the agriculture component is in its completion phase and will end in February 2022.

Alignment with SIG and Malaita Provincial Government priorities

Increasing the production and export of coconut oil is in alignment with SIG and Malaita provincial government priorities.

Coconut is included in its National Development Strategy to increase the production of commercial export crops. The Medium Term Strategy 1: Reinvigorate and increase the rate of inclusive economic


growth, notes that commercial export crops, including copra and coconut oil, are main contributors to the SI economy and increase cash incomes for rural households.”30

Coconut is included in the Agriculture Sector Growth Strategy & Investment Plan – 2021-2030 as a priority high value crop. According to the most recent draft of the plan, the coconut industry sub-program has the objective to achieve, “increased exports and domestic use of high quality copra and other coconut-derived products from sustainable coconut farming systems with increasing profit margins for farmers in collaboration with private enterprises.”31 SIG will be updating its coconut strategy for the 2021-2030 period and expects to focus on the following areas: (1) improving sector governance and partnerships, (2) increasing coconut productivity, (3) improving quality of coconut processing and value addition, (4) provision of technical advisory services to farmers, and (5) support to the sector on marketing and trade, namely through access to finance activities and improving essential infrastructure.

In a concept note summarizing the rural processing centers proposal, the Malaita Provincial Government does include coconut oil as a priority product but does not consider it a top priority, as opposed to cocoa and kava, which are top priority export market products.

Benefits to sustainable community development

The expansion of virgin coconut oil processing and increased productivity of coconut trees have the potential to create sustainable community development opportunities in Malaita. Approximately one third of all households in Solomon Islands rely on coconut for income, or approximately 29,000 households.32 Increased productivity of coconut groves, either through replanting or improved agricultural practices, could allow smallholder farming households to increase their incomes. Further investment into DME units into Malaita could allow for job creation within rural communities, which are positively impacting both women and men while using production and processing practices that do not negatively harm the environment.

KAVA



Kava is a traditional beverage made by water extraction from the root of a species of pepper plant (Piper methysticum) and has been safely used by Pacific peoples for millennia for its mild relaxing effects.

The beverage quality kava sub-sector offers strong immediate potential for increased demand for domestic consumption and export as a high-quality and natural beverage marketed to Pacific Islanders in the region and abroad. In addition to this current market, the beverage-quality kava sub-sector is

30 “National Development Strategy – 2016 to 2035”, Ministry of Development Planning and Aid Coordination - Solomon Islands Government, p. 16, April 2016. 31 “Agriculture Sector Growth Strategy & Investment Plan – 2021-2030”, Solomon Island Government – Ministry of Agriculture and Livestock, 2020, p. 81 32 Strongim Bisnis, “Coconut: Market System Analysis and Sector Strategy”, Australian Aid.


experiencing increasing demand in mainstream North American markets via the growth of the kava bar phenomenon,33 as well as via the marketing of easy-to-drink products.

An earlier kava boom during the 1990s was driven by sales of kava extracts into the dietary supplement markets of North America and Europe. A series of health scares led to import bans in the early 2000s by countries such as Germany and Canada. Scientific and regulatory investigations34 showed all these reports were connected to ethanol or acetone extracts of kava, not the traditional water extracts of the root. Since then, the restrictions have been lifted and kava’s reputation for safety has been making a steady recovery. Kava has been inscribed by the UN Codex Alimentarius as a food beverage in 2020.35

The current main target market for kava is other Pacific Islanders in the region and the diaspora community living abroad (including in Australia, New Zealand, and United States), which is approximately 1.6 million people. In addition to the Pacific Islander community, there is potential for further market growth in New Zealand where the Maori population is re-embracing kava as a drink as part of a larger cultural renaissance. This potential market could represent a significant market share.

International exports of kava from the Solomon Islands have increased steadily over the last ten years. Total volumes of kava exported were respectively 14.7 MT and 18.1 MT in 2019 and 2020. In the first two months of 2021, kava exports are recorded at 8.4 MT indicating similarly increasing levels for 2021.

It is difficult to accurately measure the kava trade between countries in the region but there are good estimates of domestic production and consumption in Fiji and Vanuatu. Figures for these countries place the annual market to be 15,000 MT of dried kava equivalent in the Pacific Islands with approximately 2,000 MT recorded as being traded internationally.36 Although this amount seems small if comparing to bulk export products, the total potential income for kava is most easily compared to another non-bulk product such as vanilla (which has a similar price per kg), whose entire global market is less than 3,000 MT. Demand for Solomon Island kava within this market is increasing as the product is seen as a higher grade, higher value product compared to other products in the region. Market sales of kava have increased approximately 14.3% annually absent any government or donor intervention or support, according to CEMA.

International kava prices are increasing, especially due to Covid-19 travel restrictions,37 but domestic prices in the Solomon Islands have been consistent at $150-200 SBD per kilogram of dried kava. Kava is informally exported to international markets largely through personal baggage on international flights and therefore restrictions in travel have tightened the supply and increased prices in the distant

33 Scaccia, Annamayra, “Kava: Inside the All-Natural High That’s Sweeping America”, Rolling Stone, 2018, https://www.rollingstone.com/culture/culture-news/kava-inside-the-all-natural-high-thats-sweeping-america-125828/, 34 “KAVA - A Human Health Risk Assessment” Food Standards Australia New Zealand , 2005, https://www.foodstandards.govt.nz/publications/documents/30_Kava1.pdf 35 “PROPOSED DRAFT REGIONAL STANDARD FOR KAVA PRODUCTS FOR USE AS A BEVERAGE WHEN MIXED WITH WATER”, FAO, 2020, http://www.fao.org/fao-who-codexalimentarius/sh-proxy/en/?lnk=1&url=https%253A%252F%252Fworkspace.fao.org%252Fsites%252Fcodex%252FMeetings%252FCX-701-43%252FWorking%2Bdocuments%252Fcac43_04_Add.1_e_rev1.pdf#page=3. 36 Pacific Horticultural and Agricultural Market Access (PHAMA) project, “Fiji Kava Value Chain Analysis”, https://phamaplus.com.au/wp-content/uploads/2018/06/Fiji-Kava-Value-Chain-Analysis-Report-FINAL.pdf 37 Fox, Liam, “Border closures see Pacific Islanders pay up to $500 for a kilo of kava in Australia”, Oct 2020, https://www.abc.net.au/radio-australia/programs/pacificbeat/stocks-of-kava-run-low-in-australia-and-prices-skyrocket/12761060

https://www.abc.net.au/radio-australia/programs/pacificbeat/stocks-of-kava-run-low-in-australia-and-prices-skyrocket/12761060

https://www.abc.net.au/radio-australia/programs/pacificbeat/stocks-of-kava-run-low-in-australia-and-prices-skyrocket/12761060


international markets. Kava is currently on sale in New Zealand at NZD200 per kg retail price, and during the spike, Australian retail prices were reported as high as AUD500 per kg.38


Kava from the Solomon Islands represents a small portion of the overall kava market in the Pacific Islands region and beyond. Vanuatu and Fiji – the front runners of kava production and exportation in the region – account for approximately 15,000 MT of kava39 whereas the Solomon Islands account for only 18.1 MT in exported kava.

Extensive plantings of kava in Malaita over the past three years have resulted in a confirmed 990,000 plants in the ground, sufficient for ongoing production of approximately 600-1000 MT per annum, beginning in the 2022 season, should the current number of farmers replant as they harvest.

The competitive advantage of the Solomon Islands in the production and exportation of kava lies mainly in its quality of product and security of supply. Due to its quality and strong reputation, kava from the Solomon Islands is promoted by name and is sold at similar prices as other products from more established markets such as Vanuatu or Fiji. Without access to chemicals or other inputs, Solomon Islands kava is all natural and has a good reputation for flavor and quality. Without the use of agricultural inputs and the terroir contributing good flavor to the product, the differentiator for kava from the Solomon Islands is as a high quality, value added beverage grade product being marketed under the Solomon Islands designation. The Pacific Islander expatriate community prefers strong kava with a lighter color and Malaita kava naturally has a lighter color and a strong and smooth flavor.

Kava from the Solomon Islands also offers a competitive advantage in terms of the security of supply for two reasons – an absence of severe weather, and a lack of large domestic competition for export supplies.

When compared with Vanuatu or Fiji, the Solomon Islands chain, especially Malaita, experiences far fewer occurrences of cyclones.40 Malaita has not recorded a direct cyclone track in over 30 years, while Fiji and Vanuatu are impacted by multiple cyclones every year. These weather events cause extensive destruction to kava crops, forcing drops in harvest or early harvests, both issues that Malaita producers do not face.

Furthermore, the size of the domestic market for kava relative to the plantings is small, meaning there is little competition for supply to export. This is in stark contrast for both Fiji and Vanuatu, which have significant local consumption which detracts from export supply.

38 “Calls for a Covid ‘kava bubble’ as supply from Pacific to Australia dries up,” The Guardian, https://www.theguardian.com/world/2020/oct/23/calls-for-a-covid-kava-bubble-as-supply-from-pacific-to-australia-dries-up. 39 Pacific Horticultural and Agricultural Market Access (PHAMA) project, “Kava Value Chain, Gender Equality, and Social Inclusion Analysis [Vanuatu]”, March 2018, https://phamaplus.com.au/wp-content/uploads/2018/03/TR130-Vanuatu-Kava-Value-Chain-Gender-Equality-and-Social-Inclusion-Analysis-FINAL.pdf 40 OCHA, “Pacific Region – Historical storm tracks for the months Nov-Apr for 1956-2009 for different ENSO conditions South Pacific Tropical Cyclone Season,” 2009, https://reliefweb.int/map/indonesia/pacific-region-historical-storm-tracks-months-nov-apr-1956-2009-different-enso



Solomon Islands kava is produced as a value-added product processed and exported only for consumption as a beverage rather than as a pharmaceutical product, which is lower grade and quality. There are two main areas where product quality could be expanded – improving the traceability of the supply chain and investment into construction and operation of food grade processing at harvest points in Malaita. Facilities where consistent clean water supply and electric power at a competitive price were available, would allow quality control closer to the source of the kava by making drying (via electric fans and heating elements) and rewashing possible soon after harvest. Clean water and electric drying would be available in a facility like the proposed Rural Processing Centers that have been put forward by Malaita Provincial Government. These facilities would have significant and strategic value in locations

where there is projected to be large available volumes of harvested kava on an existing road network.

Traceability would help exporters to guarantee the quality of the product which they are buying in Honiara, particularly in terms of cultivar grown and kavalactone profile. This would enable buyers to commit to larger as predictability would be ensured for large harvest volumes and allow more reliable commercial contracts.


Opportunities to improve the production capacity of kava in Malaita may include upgrading equipment to perform analysis of kava powder and equipment for packaging, including powdering, weighing, and labeling. In particular there are number of members of the American Kava Association who have been sourcing kava from Solomon Islands, and wish to have much greater supply from Malaita if there is reliable supply. Kavalytics is a company that has developed a field sampling machine able to provide instant readouts

of kavalactone content in samples without lab facilities, and they have expressed interest in deploying their technology to Malaita in order to boost the traceability and reliability of supply. Root of Happiness company has also expressed interest in increasing its supply from Malaita should the predictability of supply be established. Lami Kava from Fiji has similarly expressed interest in investing in marketing and packaging if it is able to access the Malaitan supply.

There are strong advantages to having these facilities in close proximity to the major growing region in Malaita, which is also located close to the road network on the island. This would potentially create efficiencies in transportation. Such colocation would make sorting and grading of kava accessible to farmers as well as ensuring that there was minimal variation in quality control of post-harvest processing.

Figure 3: Harvesting Kava



There has been active investment into the kava sector in Malaita primarily in the areas of sourcing and supplying quality planting materials and providing agricultural extension support. This has been responsible for the 50-fold increase in plantings over the past five years. Private sector exporters and processors have been the primary drivers of this work with close support by Malaita Provincial Government. There has not been significant investment in post-production to date in the kava sector.

Investments have come primarily from the domestic private sector to secure markets and establish sustainable and organic production methods. These have had the effect of growing market recognition and demand for Solomon kava. A number of key informants expressed interest in investment opportunities, especially if quality and traceability systems were expanded, including Kavalytics, Root of Happiness, Lami Kava (Fiji), and the American Kava Association. Key informants noted the potential to improve and guarantee the supply of quality kava to either be promoted in the region as a Solomon Island designated kava product or internationally in markets such as the US for kava bars.

Government ministries have expressed the importance of kava, and Malaita Province has supported an extensive extension effort in association with the small-scale private sector, to promote planting and data collection. There has not been significant investment by donors to date.

Solomon Islands kava is set to at least triple its export volumes and earnings in the next two years and sustain them, should the optimal investor alignments be reached.

SYSTEMIC IMPACT

Potential link to Solomon Islands and Malaita agribusinesses and cooperatives to regional and international markets

Malaita agribusiness and cooperatives currently are linked to regional and international markets through intermediaries who sell to exporters in Honiara. Production is destined for regional and international markets but there exists potential to expand and strengthen these linkages with increases in quality and traceability.

Figure 4: 217,000 plants censused within Wards 2&3 of Malaita Province


Solomon Organic Kava has a washing and drying facility in Auki and has been producing for export to Kiribati for two years. They are facing demand from Kiribati alone of 11-20 tonnes per month with a negotiated price of AUD50 per kg. Varivao Holdings, based in Honiara is the largest and longest selling exporter and is exporting to USA, Fiji and other Pacific countries. They utilize a network of local buyers within Malaita in addition to purchasing directly from farmers.

There are a number of end-market users (retailers, distributors and bar owners) who have indicated interest in buying from Malaita for their businesses in Kiribati, Fiji, New Zealand and USA. These end market actors have already purchased from Malaita and the Solomons and are seeking consistent supply at higher volumes. The volumes currently being demanded from Solomon Islands in 2021 cannot be met from Malaita alone, but once the main crops begin coming to harvest age in 2022, a larger proportion of the demand would be provided for by Malaita supplies.


Kava is fast becoming a cash crop for many rural households. In Malaita, there are over 800 kava farmers with more than 900,000 plants which represent a land area of more than 1,000 hectares according to estimates from the Kava Census Project of the Malaita Provincial Government. Over 70% of these are nearing their maturity stage (years two and three). This is based on kava census information collected in Malaita by Malaita Provincial Government and the Ministry of Agriculture and Livestock. Further surveys are being completed, which are not included in these estimates. The increased supply of kava once the current plant stock reaches maturity has a strong potential to create jobs and increase income to farmers in rural communities in Malaita. Experience by an independent firm that trade in spices and kava powder showed more than 50 kava farming households (with average of six people per house) in Isabel participated and generate income from kava. A single plant has a potential of generating SBD 30041 for the farming household.

Five key characteristics have contributed to kava popularity for smallholder farmers for their impact on incomes and job creation. First, kava offers a high value per unit land (more than SBD 150,000 per hectare per annum42), meaning small plots can be meaningfully cultivated, increasing participation by women and youth. Second, this small land requirement allows cultivation close to homes, reducing transit time to access and protect stocks. Third, maintenance of kava is relatively limited and post-harvest processing does not require firewood, both reducing the need for heavy labor and large groups. Fourthly, the high value per kg once harvested (SBD 250/kg dried) makes self-transport without mechanical means worthwhile. Finally, the cultivation and harvest of kava requires low levels of agricultural inputs in Malaita and the majority of the Solomons. Only good quality planting materials are needed and instruction on proper planting, pruning, and post-harvest technique. This makes entry to the sub-sector quite accessible for villagers.

Further investment to improve quality and traceability will increase demand and potentially increase sales prices which would benefit these communities in Malaita province.

41 At an average of 2kg dried kava per plant. Current price is between SBD150-200/kg of dried kava plants 42 PHAMA, “Fiji – Kava Value Chain Analysis”, June 2018, https://phama.com.au/wp-content/uploads/2018/06/Fiji-Kava-Value-Chain-Analysis-Report-FINAL.pdf



There are very limited supply chain requirements for inputs to kava growing, being principally good quality planting materials, and proper training and support. These have been primarily supplied by a network of local actors over the past three years, leading to a massive increase in planted kava.

Post-harvest inputs are more involved, but still based on good practice, with the additional elements of clean water for rinsing and peeling roots, some form of reliable drying, and finally grinding.

There are supply chain linkages for kava in Malaita and across the Solomon Islands made up of a mix of informal and formal relationships. Solomon Organic Kava (a lead firm) has a processing, packing and labelling house in Auki. Solomon Kava (lead firm) has a processing, packing, and labelling facility in Honiara and an agent in Auki. A community in the Central Kwara’ae has been trading with Varivao Holdings (domestic market) and have established supply chain links. Farms supply to aggregation points from which product is transported to Varivao Holdings based in Honiara.

A less formal supply chain also exists with more trading of kava at the farmgate between farmers and small scale buyers who then transport the small consignment, usually a combination of raw and dried materials, to Honiara for further drying and processing for sale to aggregators who later export. If formalized, greater efficiencies and potential for traceability could be possible.


There are female owned businesses largely based in Honiara, which are trading and exporting kava powder. Information from the phytosanitary certificate records notes that there were six women who exported kava to regional markets. There is potential for positive impacts on women entrepreneurs, but it is possible that the scale of the enterprise would be quite low.

The Ministry of Agriculture and Livestock survey data showed 36 women owned kava farms that will start harvesting next year. The Malaita Youth Council records indicate that more than 20 young females are growing kava for self-employment.



The beverage kava subsector is already growing due to the strength of the existing private sector in the country. Exports from Malaita to regional customers in Kiribati and Fiji have been ongoing for almost a decade and the recent significant increase in plantings on Malaita have all been organized and promoted by the private sector. The challenge currently is ensuring that high standards and a brand identity are retained when the expected 500-1000 MT volume is reached as plants reach harvest age when there are no existing extension services or business support ecosystems servicing the sector. With only two large exporters and a range of smaller exporters, the sector is not as developed formally as other sub-sectors in the Solomon Islands with local agents, extension programs from donor or government entities, or significant investment from the private sector buyers or processors to provide services to producers and assure quality for buyers.

Strong informal kava sector networks exist, which form an ecosystem where information and services are exchanged. Three small kava community groups service producers in their area and serve as an informal agricultural extension entity, sharing information and services with producers. Much of the


government-level data on kava is sourced from these groups given their reach and network with producers, even if informal. One of these is a registered trust that has acted as a service provider to a kava growing cooperative in its vicinity in Central Malaita. Corporate governance services to any SME sector in Solomon Islands remain quite limited due to the small size of the SME and agricultural sector, the dominance of logging and aid in the economy, and the preponderance of large, self-regulating multinationals.

Access to appropriate and affordable finance is very difficult for SMEs. The commercial banks are not interested in this potential customer base and have a risk adverse attitude to agriculture-based businesses. There is no national microfinance institute and the one provider has no presence in rural areas in Malaita. Larger businesses with acceptable collateral may be able to access credit and the full range of international banking services.

Donors are doing limited work in kava and have largely not provided direct support or training to producers. PHAMA Plus is currently working in kava but is only focusing on the regulatory environment for kava and supporting the development of standards for this product in Solomon Islands. The sector is largely free of international donor intervention and therefore does not face the same coordination challenges with other implementing partners as the cocoa and coconut sub-sectors.

Alignment with SIG and Provincial Government priorities

Increasing the production and export of kava is in alignment with SIG and Malaita provincial government priorities, especially given its potential for positive impact on smallholder producers.

In the National Development Strategy, kava is included in its strategy to increase the production of commercial export crops. The Medium-Term Strategy 1: Reinvigorate and increase the rate of inclusive economic growth, notes that commercial export crops, including kava, are main contributors to the SI economy and increase cash incomes for rural households.”43

Kava is included in the Agriculture Sector Growth Strategy & Investment Plan as a priority high value crop. The national government has specifically recognized the importance and potential of kava for Solomon Islands and is drafting the National Kava Development Policy – 2022-2024, which will guide the government support and regulation of the sector for the coming two years. The draft policy also indicates intention to strengthen partnership with producers, processors and traders to increase production and improve quality of kava products through the provision of grants and strengthening CEMA to expand their ability to perform chemical analysis of kava intended for export.44 Although interventions are not yet finalized and the draft report has limited details on the policy side, Malaita is recognized as a priority province and, along with Western province, is receiving the most in terms of budgetary commitments from SIG for training and in-kind grants for tools, equipment, and kava cuttings to 250 farmers.45

43, Ministry of Development Planning and Aid Coordination - Solomon Islands Government, “National Development Strategy – 2016 to 2035”, April 2016, 16. 44 Solomon Island Government , “National Kava Development Policy Draft – 2022-2024”, , 2021, ii. 45 Ibid., 18.


Kava is also integrated into the Malaita Provincial Government strategy for the development of the agriculture sector and it is included in its Rural Processing Centre concept.

Benefits to sustainable community development

Kava is seen as a crop that has potential to provide significant employment and improved incomes for rural households given its high value per hectare (SBD 150,000/ha) with limited required inputs, equipment, and labor. The costs for entry are low given the limited costs in planting, and production and cultivation can occur close to home, which creates income opportunities for women or others who are not able to travel long distances. If continued investment allows for increased production and improved linkages to processing units and buyers, kava has the potential to bring positive and equitable impact to rural communities and across households.


CONCLUSION Once the three proposed focus sub-sectors have been validated, the MSP SI-SCALE team will begin targeted stakeholder outreach with potential corporate partners in the Solomon Islands and abroad to ideate around specific partnership opportunities. During this partnership opportunity identification stage, the MSP team will seek to address remaining information gaps and will continue to validate data collected as part of the CAM. The team will also confirm important considerations and assumptions such as potential target export volumes, anticipated impact on rural smallholder farmers, sustainability and reliability of new revenue streams, and how best to incentivize actors to invest in Solomon Islands where risks are high and where doing business is costly.

The MSP team will seek out partnership opportunities that can attract Foreign Direct Investment; promote vertical integration with the end-market; develop business-to-business partnerships between domestic firms and market end-users; draw in additional debt or equity investment; develop a brand for Malaita, and the Solomon Islands, as a reputable source for premium product; promote the expansion and further development of the agribusiness sector by improving agriculture production capacity of selected high-value crops; enhance the quality of crops and value-addition of agricultural products; expand domestic and international agribusiness trade; help agribusinesses and farmers to become more resilient to climate change; and integrate social inclusion into every feasible aspect of business models.

The MSP team will identify and prioritize partnership opportunities with U.S., multinational, regional, and/or local firms and investors that mobilize and leverage private sector assets, expertise, capabilities, and resources. The MSP team will identify and prioritize specific partnership opportunities that fit the following key parameters:

• Additionality. In order to effectively leverage business expertise and advance core business interests in a manner that achieves transformational development impact, MSP will ensure that the private sector partnership resource contributions are qualitatively and/or quantitatively different than what the investor or firm would have done in the absence of a partnership with MSP and that the private sector resource contributions are timed after the grant agreement has been signed.

• Feasibility. While the CAM evaluates feasibility of a sub-sector, this parameter assesses the feasibility of the partnership concept. The partnership should have well-defined and achievable objectives. The enabling environment and the proposed combination of private sector partner assets, resources, and expertise should be sufficient to yield significant impact on a specific and important development challenge. Financial and technical approaches must be viable. In addition, the involvement of local partners and/or beneficiaries in the development and implementation of the alliance should be clear and sufficient enough to indicate the alliance will be successful.

• Sustainability. The partnership should demonstrate the potential to yield sustainable solutions to the development challenge being addressed. The private sector resource partner should express a business case that demonstrates their long-term vision and commitment to the targeted markets and communities. The partnership concept should demonstrate that the prospective firm or investor partner has “skin in the game” by making a significant financial and human capital investment in the proposed partnership. In addition, the proposed partnership should engage and strengthen


the human and institutional capacity of local partners.46 Finally, the concept must demonstrate how the investment will successfully continue independently at the conclusion of the grant.

• Scalability. The partnership should demonstrate the ability to be scaled or replicated in a manner that would offer a broader set of impacts in the Malaita Province.

Through this process, the team will confirm potential corporate partners’ interests and needs, which will help to inform the MSP SI-SCALE Partnership Facility final solicitation for concept papers, targeting the kava, coconut, and cocoa sub-sectors.


ANNEX 1: SELECTION CRITERIA COMPETITIVENESS POTENTIAL 40%

SYSTEMIC IMPACT IN MALAITA 40%

FEASIBILITY 20%

• Expand domestic and international agribusiness trade 10%

• Competitive advantage 5% • Enhance the quality of crops and

value-addition of agricultural products 10%

• Improve agriculture production capacity of selected high-value crops 5%

• Strength of investor interest 10%

• Potential to link Solomon Islands and Malaita agribusiness and cooperatives to regional and international markets 10%

• Income generation potential 10% • Job creation 10% • Local supply chain linkages 5% • Economic opportunities for women

5%

• Private sector dynamism/strength of business eco-system 10%

• Alignment with SIG and Malaita Provincial Government priorities 5%

• Benefits to sustainable, community-driven development 5%


ANNEX 2: ANALYTICAL QUESTIONS AND DATA SOURCES SELECTION CRITERIA AND SUB-CRITERIA

WEIGHT KEY ANALYTICAL QUESTIONS DATA SOURCES

Competitiveness Potential

40% Assesses potential for growth of the sub-sector


10% • Does the sub-sector offer strong potential for export growth?

• What is the strength of domestic and international market demand (current and projected)?

• Has the end market demand been growing over the past 5 years and is it projected to grow? What are the market growth rates?

• What is the impact of Covid-19 on the growth potential – are there newly created opportunities or is the growth jeopardized?

• Are there opportunities for firms in the sub-sector to increase high-value sales, either in domestic or export markets, based on demand trends?

• International trade data analysis based on Solomon Islands’ export growth trends, global market size growth trends, growth rates in Solomon Islands’ share in targeted markets over the past 5 years (for export markets)

• National statistics on domestic production and sales data over the past 5 years and trends (for assessment of domestic market demand)

• Draft National Export Strategies • Qualitative assessment based on

industry interviews Competitive advantage

5% • Does Solomon Islands have a long-term competitive advantage in this sub-sector against key competitors in domestic or export end markets?

• Are there ready market opportunities/buyers in higher value segments that firms can take advantage of with MSP support?

• Qualitative assessment based on industry interviews (associations, key informants, representative firms)

• Interviews with end market experts and/or buyers (domestically and internationally), research on end market trends.


10% • Through MSP partnerships, will farmers and cooperatives be able to enhance the quality and volume of crops in the sub-sector?

• With MSP assistance, will firms in the sub-sector be able to meet market requirements in higher value markets and increase value added?

• Are there opportunities to upgrade productivity, quality standards via new technologies, processes and innovations, and improve competitiveness? Are required human resources available/can become available to support such upgrading?

• Qualitative assessment based on industry interviews

• Qualitative productivity benchmarking based on industry and end market interviews

Improve agriculture production capacity of selected high-value crops 5%

5% • Through MSP partnerships, will farmers and cooperatives be able to improve production capacity in the sub-sector?



10% • Are there foreign and domestic investors (private equity or corporate) who are currently looking for investment opportunities (seeing growth potential) in the sub-sector?

• Are there investors that have already begun investing in this sub-sector in Malaita and could be leveraged by the project for further investments aligned with SI-SCALE objectives (i.e. smaller size investments in early growth companies)?

• Data on foreign and domestic investment in the sector over the past 5 years

• Qualitative assessment based on industry interviews (investors, associations, key informants)

• IIX analysis of existing local and foreign lender and investor activity and interest, and recommendations of sectors and


SELECTION CRITERIA AND SUB-CRITERIA


• Will MSP be able to achieve it’s intended result of private sector investment leveraged into the sub-sector and what is the anticipated magnitude of potential results that can be achieved over the life of the project?

geographic areas of greatest interest to impact and commercial financial investors.

Systemic Impact 40% Assesses the breadth and depth of the impact of sub-sector growth.

Potential to link Solomon Islands and Malaitan agribusiness and cooperatives to regional and international markets 10%

10% • Does the sub-sector offer opportunities to link Solomon Islands’ agribusinesses and cooperatives to regional and international markets?

• Does the sub-sector offer opportunities to link Malaitan agribusinesses and cooperatives to regional and international markets?

• With MSP assistance, could Solomon Islands agribusinesses and cooperatives, involved in the sub-sector, meet international standards for export?

• With MSP assistance, could Malaitan agribusinesses and cooperatives, involved in the sub-sector, meet international standards for export?



20% • Will increased trade and investment in the sub-sector lead to the creation of new income generating opportunities for Malaitian households?

• What is the magnitude of that growth?



5% • Are there supply chain opportunities with MNCs and other lead firms that would incentivize firms to adopt improved corporate governance and more compliant business practices?

• Are there potential investment opportunities from corporate investors or lead firms seeking to strengthen local trade and supply chains?



5% • Are there opportunities for women to be engaged in sub-sector via self-employment or employment?

• Are there opportunities to support gender lens investing within the sub-sector that would increase access to capital for women-owned and -managed firms?

• Qualitative assessment based on interviews (investors, representative firms, associations)

Feasibility 20% Assesses the ability to achieve results within the project timeframe.

Private sector dynamism and strength of business support eco-system

10% • Is there an evolving eco-system of business support organizations and private sector associations in the sub-sector that MSP can work through as a facilitator to further strengthen the business support eco-system to ensure scale, systemic change and sustainability?

• Are there firms and investors with a vision for growth and investment that will allow MSP to achieve early successes and crowd in further investments within the project timeframe?



SELECTION CRITERIA AND SUB-CRITERIA


• Is there evidence that benefits of sub-sector growth will not accrue to sanctioned individuals/firms/groups?

• Is there absence of other critical impediments to sub-sector growth that would jeopardize the achievement of MSP results and cannot be mitigated (such as binding regulatory barriers, strong vested interests, control by rent seekers)?

Alignment with SIG and Provincial Government of priorities

5% • Will MSP be able to ensure lack of overlap and, as appropriate, opportunities for collaboration with other USAID and donor funded projects?

• Is the sub-sector aligned with the Government of Solomon Island’s upcoming ten-year strategy for agriculture (supported by IFAD) and with the Malaita Provincial Government’s strategy?

• Review and analysis of all relevant government strategies

• Interviews with key SIG Ministries

• Interviews with relevant Malaita Government officials

• Interviews with relevant donors and projects

Benefits to sustainable, community-driven development

5% • Will investment in sub-sector result in increase of sustainable deals that reduce environmental impact and support sustainable community development and resilience?



ANNEX 3: COMPETITIVE APPRAISAL MATRIX COMPETITIVENESS APPRAISAL MATRIX Key Sectors and Sub-Sectors

Com

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ness

Pot

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al

Exp

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Com

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of s

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high

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Enh

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the

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and

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Stre

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Syst

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Inco

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Opp

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and

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Ben

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dev

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Tot

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(ou

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100

)

Ran

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Weights/Score (1-7)

40% 10% 5% 5% 10% 15%

40% 10% 20%

5% 5% 20% 10% 5% 5% 100

Cocoa 34.3 6.6 5.3 6.6 5 5.6 32.3 5.8 5.6 7 5.3 13.6 5.6 6.6 4.6 80.7 3 Coconut 33 5.3 5 6.6 4.5 6 34 6 5.6 7 5.6 14 5.3 6.3 5.6 81.7 2 Kava 84.7 6.6 6.3 6 6.5 4.3 38 6.2 7 5.6 7 14 5.3 6.3 5.6 84.7 1

COMPETITIVE APPRAISAL MATRIX

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