The coffee rust (or “roya”) outbreak in Latin America in 2102 and 2013 was the worst incidence of this disease in four decades. By 2013, more than half of the coffee crop was infected and more than $1 billion in farmer revenue lost.
Roya’s rapid spread and crop devastation highlighted the vulnerability of smallholder farmers caused by underinvestment in agriculture, aging trees, poor farming techniques, and a changing climate. In response to the crisis, in mid-2013, Root Capital launched the Coffee Farmer Resilience Initiative (the Initiative), a fund offering long-term loans to finance the replacement of diseased trees, short-term trade credit for working capital, and other financial management, literacy, and agronomy training.
While the Initiative covered the costs of services that Root Capital provided, including loan administration, Root Capital realized that their cooperatives would need access to more products and services than Root could manage. It also saw an opportunity to create a sustainable funding mechanism that was not dependent on donor dollars, but would involve investments by coffee purchasers in a fund to support crop sustainability in future years.
Accordingly, Root launched the Farmer Resilience Fund (the Fund), a partner-based investment pool that could be accessed by coffee enterprises to invest in any number of strengthening activities. Since this was an unfamiliar and untested model, Root secured a dollar for dollar match of private sector financing from a government agency to motivate coffee buyers to participate. The agency shared Root Capital’s belief that the Fund was a scalable, durable financing innovation that would support long-term stability for smallholder farmers, their communities, and the coffee supply chain.
In the course of the final negotiations for the Fund match, however, Root Capital met an unusual and unforeseeable obstacle. Though Root had been in discussion with the agency for months, only after approval of the grant, was Root informed that project activities in Nicaragua were not covered under the grant agreement for undisclosed reasons. That no agency aid could be spent in Nicaragua at that time, was information that the agency was prohibited from mentioning during the grant negotiations. With the project poised to start, only half funding was available for the largest coffee producer in the group. With this limitation, the impact of the Fund would be drastically reduced, which would also undercut the effectiveness of the Fund as an investment model for the coffee industry.
During project implementation, Root Capital received notice that activities in Nicaragua could commence; however, Honduras was now temporarily prohibited. Root was able to move some funds to address this smaller scale issue.
A grant for $95,000 from Open Road was used to match the contributions for Nicaragua invested by two private sector coffee purchasers.
Between October 2013 and December 2014, The Fund disbursed $21 million in short-term credit to nearly 20 different coffee clients in Nicaragua and approved $3.5 million in long-term credit to two Nicaraguan clients.
As part of its Advisory Services, Root Capital provided 336 days of training to 20 coffee clients in Nicaragua between October 2013 to December 2014.
An effective and lasting roya response must begin 3-6 months before the harvest; due to Open Road’s support, Root Capital was able to double the assistance it offered to vulnerable farmers in time to positively affect the fall harvest. More precise outcome data will be posted on the Open Road website after April.
To learn more visit: Root Capital
TILT Forward Initiative and DreamFund (Association for Enterprise Opportunity)
Carbon Roots International
Homeboy Recycling (Isidore Electronics Recycling)