Less Risk, More Reward
Empowering Smallholder Coffee Farmers to Better Manage Risk
Smallholder coffee farmers operate in a world of risk. Rapidly changing prices, adverse weather conditions, pests, and disease — alone or together, these shocks and stressors can quickly undo the promise of a successful coffee growing season and severely diminish smallholders’ income and food security.
To help farmers better manage risk, Feed the Future Partnering for Innovation partnered with four organizations and private sector businesses — Farm Africa/Root Capital, Neumann Gruppe GmbH, and Oikocredit — to launch innovative risk management initiatives that enable smallholder coffee farmers to reap more rewards and face less risk as they cultivate this high-value crop.
Stronger Farmers, Stronger Supply Chains
Program partner Neumann Gruppe GmbH (NKG) — the world’s largest coffee trading group — considers helping smallholders better manage risk essential to its bottom line. With limited access to financing and training, many farmers are unable to make the crucial investments needed to increase their productivity and adapt to the challenges posed by climate change. By 2050, the Inter-American Development Bank estimates that the total land suitable for coffee production will be halved.
NKG is tackling these challenges head-on through its global NKG BLOOM initiative, which aims to build a sustainable supply chain by providing farmers with the opportunities and resources they need to grow and adapt. With support from Partnering for Innovation, NKG provides smallholders in Honduras and Kenya with a reliable market for their high-quality coffee, strengthened resilience to climate shocks and fluctuating market prices, and improved access to critical inputs, training, and loans.
To date, NKG has reached more than 62,000 farmers through 16 cooperatives in Kenya and 91 cooperatives in Honduras. With the successful launch of its coffee farm renovation program in Honduras, Recuperando Mi Cafetal, more than 200 producers have received long-term loan packages to replace their coffee tree seedlings with new, more productive- and drought-resistant varieties. The company also provides a market for these farmers’ crops and has purchased 5,371 metric tons (MT) of green coffee from 89 cooperatives in Honduras and received 20,783 MT of fresh coffee cherries from 11 cooperatives in Kenya.
Managing Price Risk Opens Doors
Located far from international coffee markets, smallholder producer organizations (SPOs) and their farmer members face significant obstacles in setting prices for their coffee. As a result, they are regularly exposed to the risks associated with price fluctuations. Ill-equipped with the knowledge to effectively manage these risks, a slight price change in the local and futures coffee market can have a severe impact on these producer groups, ultimately resulting in lower incomes for farmers. The vulnerability of smallholders to price shocks threatens other market actors as well, as SPOs are forced to default on purchasing contracts and loans.
In responses to these challenges, Partnering for Innovation collaborated with two organizations — Farm Africa and Oikocredit — to provide SPOs in key coffee-producing countries with access to the knowledge, tools, and financing necessary to effectively manage price risks.
In Peru, Oikocredit overcame restrictions imposed by the COVID-19 pandemic to train 11 SPOs on managing price volatility in the coffee market. When lockdowns rendered in-person trainings impossible, Oikocredit pivoted to an interactive e-learning platform that used a combination of self-paced modules and live virtual workshops.
The organization also developed a customized information dashboard to help SPOs determine their price risk exposure. The dashboard pulls data from the SPOs’ existing management systems to deliver a real-time open position that can inform pricing decisions. As a result of the training, Oikocredit approved the disbursement of US $100,000 in new financing options to four SPOs that demonstrated strong capacity for managing price volatility.
Thousands of miles away, Farm Africa partnered with Root Capital to deliver price risk management trainings in Uganda, Rwanda, and the Democratic Republic of the Congo. Participating SPOs learned how to understand their risk exposure and develop internal risk management skills, tools, and strategies to mitigate the risks of price volatility, smooth income, and facilitate well-informed planning and investment. This information, in turn, makes them stronger clients for Root Capital, by reducing the likelihood of loan defaults and by opening the door for new financing opportunities.
In response to the COVID-19 pandemic, Farm Africa likewise shifted from in-person trainings to an e-learning platform. Farm Africa has since completed its initial training with 97 representatives from 36 SPOs, and is currently conducting a second training. A recognition of participants’ improved price risk management capacity, Root Capital approved US $700,000 in financing to two new SPO clients and increased the value of loans approved to six existing SPO clients.
Learn more about how Feed the Future Partnering for Innovation is collaborating with businesses and organizations operating in the coffee sector to strengthen the ability of smallholder coffee farmers to better mitigate and manage risks.