Farm Renovation & Rehabilitation What do I need to know? Is R&R right for my supply chain? How can I take action? Where can I learn more?

Long term lending in Nicaragua

ECOM’s close relationship with Nicaraguan farmers has been used to setup a direct and innovative renovation financing mechanism

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  • R&R type Loan based renovation
  • Country Nicaragua
  • Costs USD 30 million
  • Dates 2011-2025
  • Borrowers Farmers with a ECOM credit history
  • Currency USD
  • Tenor Up to 8 years
  • Grace period 3 years (interest only)
  • Interest rate Affordable in the one to two digit range and depending on the credit profile of the farmer

Project Context

  • In 2013, La Roya affected 40% of coffee plantations in Nicaragua creating the need for a large renovation program.
  • The coffee sector is loosely regulated. Private traders1 have a strong presence in the country and have tight relations with farmers in their supply chain.

Objectives, Activities, and Results

  • The program aims to renovate up to 5,000 hectares (~5% of total coffee area in Nicaragua) via loans to ~ 550 farmers.
  • The target is to renovate 1/3 of farmers’ land.
  • It is still too early to estimate final yield uplifts, but preliminary results look promising.
  • Value creation: Improved planting material with certified plants that are tolerant to rust and improved quality attributes and; improved livelihoods.
  • Value capture: ECOM and Starbucks secure supply; SHFs through increased incomes.

Project Context

Management of the three R&R Components

Inputs

Providers

Nicaragua has good local capacity in seed production. In 2011, CIRAD3 was developing a pilot project to select rust tolerant coffee varieties with high cup quality characteristics.

Challenges faced

The choice of appropriate varieties is key to the success of the program, but registering new varieties (e.g. Marsellesa) took time.

Solution

Build up local capacity to produce certified plants.

Finance

Providers

IFC, IDB, ECOM and Starbucks.

Challenges faced

  • Understanding risk.
  • Diversifying risk.
  • Protecting investors.

Solutions

  • ECOM data supported underwriting, but loans to date had been for 3-5yr working capital, not long term infrastructure loans, so there was high uncertainty.
  • Involvement of larger farmers de-risked the portfolio of loans.
  • The investors set up a trust, which while time consuming, has protected them from exposure if loans do default.

Knowledge

Providers

ECOM and IFC.

Challenges faced

Improved planting varieties require use of inputs and adoption of GAP.

Solution

IFC will work with ECOM’s field agronomists to standardize skills and knowledge of improved practices which will help to increase adoption rates from participating farmer.

Notes:
(1) ECOM, Mercon, and OLAM trade 90% of Nicaragua’s coffe.

(2) Figures from GCP and Technoserve, Economic viability of coffee farming, 2017.

(3) The French agricultural research and international cooperation organization working for the sustainable development oftropical and Mediterranean regions. Source: IDB, ‘IDB partners with IFC, Exportadora Atlantic and Starbucks to help Nicaraguan farmers combat coffee rust disease’, Press release 06/24/14; Dalberg interviews.

Lessons learned

  • Farmer segmentation is crucial to success
    Larger farmers were used to diversify the portfolio of loans, and deliver returnexpectations that met the investors’ needs, whilst also ensuring some SHFs canrenovate their farms.

  • Close links between traders and farmers mean you can do renovation without a cooperative
    Although Nicaraguan farmers are typically not organized in strong cooperatives, ECOM was able to select appropriate farmers and deliver training because of their close relationships with farmers.

  • Transaction costs for pioneers can be very high
    The coalition of partners faced significant time costs in developing the programme, and delays in negotiating new trust law in Nicaragua.

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Learn more and get involved

There is a lot of work to be done to ensure the long-term supply of coffee from countries where the crop has long shaped the social and economic fabric. Learning to extend the life of their trees and improve yields helps farmers stabilize annual production and in turn, income, while the rest of the world benefits from a steady supply of quality coffee. Continue on to learn more about the immediate attention and action that is required to make this a reality.

01.

What do I need to know?

Meeting the R&R need will becrucial to securing coffee supply for 2050 and beyond but there are no quick fixes. Here are some keyconsiderations.

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02.

Is R&R right for my supply chain?

There are so many considerations when developing a program. How do I know if a renovation or rehabilitation is right for my supply chain?

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03.

How can I take action?

There are seven major needs for the R&R sector, from scaling up existing approaches, to laying the foundations for future R&R

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04.

Where can I learn more?

Download the Country data sheets or complete Guidebook in English, Spanish or French

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