How inclusive business relationships give farmers access to capital and training

How inclusive business relationships give farmers access to capital and training

This news is part of the following focus area:
Josephine Ecklu
Josephine Ecklu
Inclusive Business coordinator

A stable and long-term business relationship makes it easier for small producers and their organisations to obtain access to loans, training, technology, etc. These are incentives that encourage them to invest in their business.

Therefore, one of the six key principles of an inclusive business relationship relates to equitable access to services for all parties. Do producers have access to training to learn more about new agricultural and post-harvest practices? Do they have timely access to market information? And to financial services? Are these services provided by the buyer or by another actor? Below, we give some examples about specific business cases brokered by Rikolto.

Joint investments between a farmer cooperative and a buyer

In 2018, the coffee sector in Peru suffered from a double crisis: heavy rains and very low prices seriously affected coffee quality and production. Farmers were extremely demotivated. It was in this difficult context that Allegro Coffee and the coffee cooperative La Prosperidad de Chirinos jointly decided to revive farmers’ spirits. Allegro signed an export contract for over 170,000kg and would pay a premium price for it, on condition that the members supplied organic quality coffee.

A joint investment scheme was set up to purchase quality drying domes, to give training on producing Pachakushi fertilizers (meaning ‘happy soil’ in Quechua), on bookkeeping and other business skills. Allegro Coffee would pay the biggest share of the investment (37%), La Prosperidad 32% and Rikolto 31%. A year later, we can proudly say that the coffee farmers managed to supply very high-quality organic fairtrade coffee and fulfil the terms of the contract.

It shows how it is possible for smallholder cooperatives to respond quickly to market opportunities, and commit themselves, on condition that the buyers are willing to plan and invest together.

Lith Montés Quispe Project Coordinator

Crowding-in of services as a result of formal trading relations

Grain trading systems (including rice) in Uganda are largely unstructured. Such unstructured trading systems are not transparent and do not provide farmers with efficient services that support their growth and allow them to earn decent incomes from the farm. Since mid-2019, Rikolto has brokered business relations between two cooperatives of smallholder rice farmers in Bulambuli district (Taabu Integrated Cooperative Society Limited and Bunambutye ACE) and SWT, a company engaged in rice processing and distribution across Uganda.

“The local Micro-finance Support Centre and Yara East Africa, an environmentally safe mineral fertilizer company from Kenya, monitored the progress of our discussions, even before formal agreements have been signed,” explains John Ereng, rice programme coordinator in Uganda. “Even more, MSC and Yara have already started providing services to the farmer organisations, because they saw a business case in it for them.”

“MSC is now working closely with the Bunambutye ACE management to help them meet its lending requirements. At the same time, Taabu ACE has also been given the nod to apply for a larger working capital loan from the financial institution. This is extremely important as it will allow Taabu to make advance payments to their members for paddy rice at harvest, before SWT can pick it up from the Taabu’s central store. To this effect, Taabu is currently undergoing an audit.

Yara East Africa is building on the fact that the farmer organisations intend to make a deal with SWT and access loans from MSC. This will allow the farmers to buy farm inputs, including fertilizers. The fertilizer supplier has already earmarked funds for setting up rice demos to train the farmers on how to use their products. The new season begins in April 2020, let’s see if everything falls into place!"

Since mid-2019, Rikolto has brokered business relations between two cooperatives of smallholder rice farmers and the company SWT. The new season begins in April 2020, let’s see if everything falls into place!

John Ereng Project Coordinator

Access to training and technical advice

Many of the organisations Rikolto supports strive for applying Good Agricultural Practices (GAP) and Good Manufacturing Practices (GMP). These are principles to apply for on-farm production and post-production processes, resulting in safe and healthy agricultural products, while taking sustainability issues into account. For each crop in a specific region, there is a set of practices identified which have to be followed. In which case the buyer is co-invested in the training of farmers.

In the vegetable sector in Nicaragua, GAP certification of farms is one of the most important achievements of the alliance between 4 vegetable coops and Subway. Entering this high-quality market with premium prices incentivised farmers to achieve certification. Subway sent a GAP a GMP advisor to assist the cooperatives. It was a positive experience to learn more about crop management, methods to increase productivity and the development of knowledge around safe production.

At the same time, each cooperative manages capital to grant loans to its members. This money is used to purchase supplies, tools and/or to provide specialised technical assistance to each member.

Export sales contracts as catalyst for future investments

In Tanzania, the horticultural association Muvikiho brings together 570 farmers. Among other things, Muvikiho organises training courses on which farmers learn how to produce better and safer vegetables and fruits. The association even achieved the required Global GAP (Good Agricultural Practices) label, which guarantees safe products. In the past, an export company paid for the certification process. As a result, the company was in a powerful position and could impose its conditions and prices on the farmers. Now that they have their certificate, the farmers are stronger, and they can negotiate with several exporters.

Despite the limited volumes, the export market works as a catalyst. “The knowledge farmers gain about how they can grow higher quality products also comes in handy when they produce for the domestic market,” says Shukuru Tweve, our colleague in Arusha. “And we see that domestic buyers also start paying better prices in order to be able to compete with exporters.”

Because Muvikiho can provide evidence of sales contracts, this facilitates access to loans for its members. This allows the farmers to invest in seeds, fertilizers, equipment and other services. Together, the farmers of Muvikiho are stronger, with better prices as a result.

Down payments in the coffee sector

The financial boost provided by pre-financing the harvest aims to give the cooperative the means to invest.

In the east of the DR Congo, a region plagued by insecurity, Colruyt Group and Rikolto have joined forces in 2017 to support Kawa Kabuya, a cooperative of 2,200 small coffee growers. Beyond the commercial agreement to guarantee a significant purchase volume for 3 years, Colruyt Group wants to support the cooperative in its development efforts. This is made possible notably thanks to the pre-financing of the harvest.

Philippe Toussaint, Colruyt Group project manager for sustainable purchases explains: “Like many cooperatives in developing countries, Kawa Kabuya pays its small producers when they deliver their crops, in other words several months before the coffee is sold. As it doesn’t have cash reserves, it has to use bridging loans to finance this operation. However, in this troubled region, loans are very expensive. We remove the financial obstacle to progress by settling 60% of the amount of our purchase before the harvest.”

Also in Indonesia, companies seriously commit to their trade relations with cooperatives. MTC, Australia's leading specialty coffee broker, provided a down payment of up to 80% to Koerintji Barokah Bersama Cooperative (KKBB) in Kerinci Regency, Jambi Province. MTC is confident in paying the advance since KKBB has always been able to maintain the quality of their coffee. But building trust took time: it was only after a three-year business relationship that KKBB received the first down payment from MTC.

Moreover, KKBB has access to several services. They can ask for technical support from MTC about quality issues. And from the government they received support for the production facility, and through the Central Bank Indonesia they were trained in using specific accounting software and were able to obtain a grant for building coffee drying domes.

Fine chocolate: collaboration from bean to bar

Chocolatiers are always looking for the best cocoa beans and bean-to-bar initiatives are found in all countries. In Indonesia, on the island of Sulawesi, Rikolto introduced Mason Chocolate Gourmet, based in Bali, to cocoa cooperatives. After an initial visit to assess the quality of the cocoa beans, a list was drawn up of improvements to be made. Mason employed a senior researcher from the Indonesian National Cocoa Board as back up for specific questions related to processing and handling the cocoa beans. Also, Mason invited farmers from North Luwu to come and visit its facility to find out how the chocolate is processed before it ends up in the shops.

Also in other countries, the collaboration between farmer organisations and cocoa companies covers the whole chain: from support at production level, to the exchange of specific technologies at the end of the chain. In Peru, the chocolate company Obolo, based in Chile, taught the staff and producers of Cooperativa Agraria Pangoa Ltda. how to make chocolate: this involved training in the different processing steps, but also on issues related to teamwork, hygiene etc. Rikolto works closely with them, and other partners, to develop sustainable production techniques and improve the quality of the cocoa. If farmers also have good knowledge of the end product, it helps them to improve their work in the field.

Different crops, different contexts… Yet these examples show that – both in highly structured value chains like coffee and cocoa, and also in the unstructured rice sector – farmer organisations and their members are able to get access to loans, training and other services through strong partnerships, co-investments and building trust. We’re eager to find out about other experiences!

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