Aligning the right type of financial product with the different needs at the farm and aggregator levels remains a chronic challenge to resilient food systems. As one of our panelists said: “Putting ‘agriculture’ and ‘long term’ into the same sentence is about as scary as it gets for financiers.”
The financing resilience panel at the Food Lab Summit brought together four organizations grappling with this challenge head-on. They identified the opportunity space as effective partnerships and collaboration to:
- Provide guarantees – international agencies could provide a guarantee fund (e.g. FIRA fund in Mexico system)
- Partner to build business acumen at grower and coop levels
- Incorporate externalities into product price to reflect the value of climate resilience
- Partner, as exporters and roasters, to finance the need for more extensionists.
- Offer weather index insurance (public sector).
Jerómino Bollen, Sustainable Harvest Coffee Importers, emphasized the need to consider the whole supply chain and the relationships between the various actors. Sustainable Harvest brings transparency to both the margin distribution along their chains and the ways that their clients and suppliers can partner for increased resilience. The company’s priorities are to bring knowledge, market access and finance to their farmer suppliers. They help farmers with access to market prices and trends and organize the Let’s Talk Coffee events, which bring together several hundred coffee stakeholders in one event to exchange information and learning. The company is well known for use of their contracts as guarantees for trade finance for their suppliers. Bollen reiterated that a key prerequisite for cooperatives to successfully receive and manage financing is strong commercial management skills. And even with this, many coops face challenges developing and managing technical and multiyear financial programs.
Café California, a division of the global Neumann Kaffee Gruppe, is partnering with FIRA, the Mexican government’s financing arm, to offer low interest loans to coffee farmers for renovation. Osvaldo Ortega explained how the company contributes a 20% guarantee, and FIRA guarantees the balance to a local bank, which lends to the exporter. This private public alliance is a leading example of how public finance can be leveraged by the private sector. Café California decided not to make renovation a profit center, but rather uses this work to engage their farmer suppliers to invest in their farms and build loyalty between the company and farmers. The company provides technical assistance, which is also linked to SAGARPA’s coffee renovation program for nurseries and planting material. One of the core challenges the company has identified to scaling this program is not necessarily the lack of funding, but rather the limits of qualified technical assistants who can work with coffee farmers of different cultures to learn how to effectively renovate their farms.
Joel Brounen, Solidaridad’s coffee lead, walked us through how climate smart practices like (i) increased density of coffee trees, (ii) renovation with climate resilient varieties, (iii) better soil management, (iv) optimized shading, and (v) improved water waste management can increase resilience and decrease the “true cost” of coffee.
Solidaridad recently partnered with True Price to publish a study on the costs of producing climate smart coffee. Their research, which has been tested in Mexican coffee farms, shows that with a climate smart model the real cost of coffee can be reduced from $8.70/lb-$1.30/lb. Conventional coffee rarely includes the costs of externalities or hidden costs, such as soil or water pollution, or the societal costs of underpayment of workers. This research is being integrated into the development of a coffee climate fund to help finance the adoption of these practices. See full report on their True Price of Climate Smart Coffee work here.
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