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The World of Farmer Finance is Changing

Posted by: Willy Foote, Founder & CEO | Tuesday May 31st, 2016

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With Jose Dominguez, a coffee farmer and producer member of RAOS, a Root Capital client in Honduras

The world of farmer finance, as we know it, is changing.

That’s the take-away message from the Initiative on Smallholder Finance’s latest study, a thorough report providing the most nuanced snapshot of the industry to date. So just how is it changing?

The report notes the importance of three emerging themes:

  • Customer centricity: designing offerings that reflect a better understanding of the needs and preferences of smallholder farmers
  • Progressive partnerships: building deeper partnerships, such as those between financial institutions and value chain actors, that decrease cost and risk and increase the impact of serving smallholder farmers
  • Smart subsidy: relying on blended capital transactions, in which public or philanthropic capital attracts private investment

I’ll leave it to the impressive study to further unpack each of these, but add a quick note on the second point — progressive partnerships — and the collaboration required to truly unlock the three themes.

For decades, actors in the smallholder finance industry worked in silos, carrying out specialized interventions that didn’t allow much room for collaboration. But today, as the report points out, the industry is “marked by a more diverse set of actors” — public- and private-sector stakeholders who are teaming up, and who have the potential to make serious headway in closing the supply-and-demand gap of the agricultural finance market.

Take the public, private, and nonprofit players who have all come on board to Root Capital’s Coffee Farmer Resilience Initiative as one example. In early 2013, as a fungal disease called coffee leaf rust ravaged its way through the coffee lands of Latin America, Root Capital began leveraging relationships with leading coffee companies, policymakers, development institutions, and visionary foundations to help build resilience for vulnerable farmers at the heart of the supply chain.

These are farmers like Nicolás Pineda, a coffee producer in Honduras, who told me as we stood together on his farm in 2013 that the coffee leaf rust outbreak felt like a “scourge from God.” He gestured toward his gray, spindly, lifeless coffee trees — his being just one of hundreds of thousands of Latin American coffee farms affected.

 

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Nicolás Pineda holding a coffee leaf affected by coffee leaf rust.

 

The scourge continues. Many farmers like Nicolás were, and still are, coping with losses that will have long-term implications. They’ve been forced to make difficult decisions between putting food on the table and putting their children through school. Many have had to abandon their land and their families in search of work in cities. In Perú, for example, one of the coffee businesses we work with lost 70 producer members the first year of the coffee leaf rust outbreak, as one by one they left their farming lives behind to work in the mines.

So far, our motley crew of actors under the Coffee Farmer Resilience Initiative has disbursed $7 million in long-term loans so that nearly 850 vulnerable farmers in Latin America can start renovating and rehabilitating diseased, aging, or otherwise unproductive coffee plants. We’ve supplemented our credit with trainings on financial management and agronomic planning and monitoring, income diversification strategies, and mobile technology — all of which will make businesses stronger and farmers more resilient. While our work together has garnered industry recognition, we know there’s much more to be done.

The world of farmer finance is changing, and so too is the context in which smallholder farmers are operating. On top of unpredictable growing conditions tied to erratic weather, factors such as price volatility, shifting buyer patterns, and food insecurity are jeopardizing producers’ livelihoods and testing their ability to cope with shocks like coffee leaf rust. It’s up to us to help smallholders battle the stresses that constrain productivity and prosperity.

We are all part of the solution. Here’s to the promise of customer centricity, progressive partnerships, and smart subsidy that enables farmers throughout the world to confront big challenges. Here’s to traveling onward, together. I know we have what it takes.

In gratitude,

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Willy Foote, Founder & CEO


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