Access To Finance Permata Gayo members meet with USAID staff for a training in Aceh, Indonesia. Credit: Root Capital
“Gayo Mountain” coffee, known for its earthy, sweet green pepper and red fruit flavor, is named after the ancestral residents of Aceh on the Indonesian island of Sumatra.
Many smallholders who farm the region’s fertile soils are members of the Permata Gayo cooperative. The cooperative aggregates and processes their coffee harvests, producing high-quality beans that are exported to international markets in the U.S. and Europe.
Founded in 2006, Permata Gayo launched with only 50 farmers across five villages. Today, Permata Gayo supports more than 2,000 members from 39 Sumatran villages and boasts certifications, including Fairtrade, Organic, Rainforest Alliance, and Small Producers.
Permata Gayo’s General Manager, Armia Ahmad (front row, second to left) poses with staff at their headquarters in Aceh, Indonesia. Credit: Root Capital
The Challenge
Sixty percent of the world’s coffee supply comes from smallholder farmers with less than five hectares of land. While their crops account for over half of the world’s coffee beans, these farmers and their cooperatives often lack access to the finance required to scale up their businesses and reach new markets. This was the case for Permato Gayo.
Our Collaboration
Since 2015, when it became one of Root Capital’s first lending clients in Indonesia, Permata Gayo has received more than $6 million in loans from us. The cooperative has also received various technical advisory services from the Partnership for Sustainable Supply Chains (PSSC), a public-private partnership that Root Capital launched with the US Agency for International Development (USAID) and other philanthropic supporters.
Public-private partnerships have the unique opportunity to deliver critical services while spreading risk, improving value chain efficiencies, and strengthening market linkages. PSSC creates opportunities for small coffee cooperatives to scale up their business with advisory services, debt relief, and resilience grant funds.
Permata Gayo’s sales have improved with the support of PSSC, allowing it to purchase more than $28.7 million worth of coffee from more than 2,000 smallholder farmers over the course of the partnership. Indeed, the cooperative’s sales increased steadily year-over-year, and thanks to the PSSC and Root Capital’s advisory services, it was able to successfully weather the COVID-19 pandemic.
The Impact
Support from Root Capital and our partners has helped transform Permata Gayo’s business capacity and its ability to increase revenues flowing into rural communities. The cooperative has been able to:
- Implement impeccable quality control processes, which enabled it to eliminate waste due to low-quality produce;
- Purchase a cupping station and invest in improved quality control systems. These investments increased the overall product quality and helped Permata Gayo enter the lucrative specialty coffee sector;
- Adopt digital data management systems to enable data-driven planning and improved farm practices for better yields and higher quality;
- Scale its business to buy more crops from farmers and enter a larger market for their certified coffee. In 2021 alone, this brought in over a quarter of a million dollars in premiums; and
- Invest half of the premium funds back into the business as working capital to cover salaries, machine purchases, and certification costs. The remaining funds were used to support a range of social and environmental programs, such as funding a school where children can learn Gayonese song and dance, and distributing rice, palm oil and sugar to members during the off season.
Gaining access to finance helped propel Permata Gayo as a business and its ability to improve livelihoods in its local community. This infusion of money into local economies has helped increase incomes, contributing to a better standard of living for farmers and greater prosperity in rural Sumatra.