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Tuesday, March 20, 2018

CRYPTO N CAFE - Helping Coffee Farmers



Small-scale coffee farmers' struggle is not news for anyone in the industry. A quick Google search for the term "coffee farmer" produces results pages with multiple iterations of the same message - coffee farmers hardly break even.


We know the statistics that coffee farmers typically earn less than 10 percent per pound of retail value for their coffee. And we understand that the additional costs for agricultural inputs (such as fertilizer), co-operative costs and intermediaries further reduce the number of farmers who can be tied up by farmers from their seed sales. We know all of this, however, we do not translate that knowledge into broad and meaningful changes for the world coffee farmers, who continue to live in poverty despite industry growth.

This does not mean that important changes do not occur. The same Google search will also bring up Web sites and articles discussing Fair Trade, direct trade and impact investments, all of which can improve farmers' profit margins in the right circumstances. Coffee companies are also investing in social responsibility departments and foundations aimed at helping poor farmers, so there is a clear push in the industry to make a difference. But the fact is this: the business itself is not enough to move the needle from farmer poverty to the welfare of farmers.

Today's coffee farmers - especially those who farm in small lands face challenges, must all be overcome if they have to get out of their poverty cycle:

Most coffee farmers are not getting enough food to meet the needs of their families throughout the year and do not have savings, credit, insurance or alternative sources of income to be compensated when their coffee harvest is bad or low market prices.

Best coffee altitude usually require that farmers live in remote areas with difficult mountainous terrain, which limits their access to markets and forcing them to sell their beans at lower prices to intermediaries, who have the means to transport their beans to buyers.

Many coffee cooperatives suffer from poor management, allowing the bias and dynamics of traditional forces to limit how much a farmer benefits from his members.

Coffee farmers also compete with climate change, which negatively affects production in various ways. Increased temperatures have triggered the dramatic spread of la roya (rust of coffee leaves), shrinking of land suitable for growing coffee, and bad weather frequencies.

Lack of training on smart and environmentally friendly farming practices and lack of clean water generally reduces the quality and quantity of their coffee harvest and contributes to environmental degradation.

Besides all this, coffee growers are also aging. On average they were in their mid-to-late fifties, and their children did not plan to follow in their footsteps, instead looking for more profitable jobs in urban areas. This brings up a number of questions about the sustainability of the coffee industry itself. If coffee farming does not become profitable, what incentives exist for young people to live?

And if youth do not stay, who will plant coffee in 20 or 30 years? If farmers do not have access to the right tools and knowledge of environmentally sound farming practices, where will farmers grow coffee once the soil has gone bad? In addition to the imperative of humanity, addressing this issue now and ensuring that prosperous coffee growers today will increase the sustainability and quality of world coffee supply over the coming decades.

To address these complex challenges effectively, we need to develop a long-term, multi-faceted, dynamic, and contextual socio-economic and ecosystem approach. We need to expand the focus of programs designed to help farmers, and we must make it more holistic. We must weave together the initiative of a single approach, such as price guarantees, with activities aimed at improving the social, economic and environmental realities in which peasants live and work. To ensure effective program design and implementation, we must plan, implement, monitor and evaluate the program strictly to ensure they meet the objectives, and we must make adjustments when not doing so.

MOST OF SMALL FARMERS DO NOT HAVE CREDIT BUT WE CAN PROVIDE SUPPORT

Millions of coffee farmers and coffee trading companies have less credit. This is partly due to the challenges and costs that formal lenders have to pay to serve the rural market, which is often isolated. It is also often perceived as a case that the inability of coffee farmers and companies to manage risk contribute to maintaining creditors by avoiding risk. A better understanding of coffee sector risk is needed to respond with strategies, training, and tools that can help farmers, and companies, reduce their risks to risk and strengthen their resilience to inevitable shocks. Such efforts can also help in improving the upstream flow of credit, catalyzing investments in new productivity improvements, and contributing to livelihoods of more profitable and more sustainable farmers.

The coffee sector, like others, has experienced tight credit conditions during difficult financial times. Perceptions of increased risk cause the lender to cut the loan amount and the value of the loan, raise the interest rate, reduce the exposure, and tighten the criteria and terms and conditions of the loan. This type of credit extortion has hit coffee traders and, in particular, small farmers.

The lack of trust in lending to the coffee sector is only partly due to the historic repayment difficulties and also reflects the common challenges associated with lending to the agricultural and rural sectors. These challenges include: relatively high transaction costs; a weak credit culture; lack of collateral (and the default of default guarantee); and frequent climatic events that disrupt industry. There is also perception, often borne by events, high risk and ineffective risk management.

Coffee trade and farmers operate with a lot of uncertainty and, consequently, have to do their activities with imperfect information. Risks, therefore, have a direct negative impact on the overall profitability of their operations and their ability to access finances. In addition, while all coffee businesses recognize risks, they are often less familiar with how to account for many of these risks and, in some cases, how to manage them. The lender will simply refuse to lend when sector risk is considered unacceptably high. Therefore, risk is one of the main reasons why the demand for financing in the coffee sector has not been met and has led many unprofessional farmers and traders to run their business optimally.


Even when risks are felt at some level to encourage lending, the level of risk will play an important role in determining the interest rate charged. Lenders need to determine interest rates that accurately reflect their costs, risks they take, and their profit margins. In most cases, the institution determines the loan interest rate for the appropriate sector and client.


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