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Innovations At Origin: Young Coffee Entrepreneurs

Dan McQuillan
December 30, 2020
Key Insight

PROCAFE’s story is at a crossroads, groups like theirs require investment -from industry not just development organizations – to ensure their way forward is viable and profitable.

After reading Bloomberg’s article on cost of production and profitability for Guatemalan growers earlier this month, There Is No Money in High-end Coffee for Guatemalan Growers, I was inspired to add a few more posts to last year’s multi-article series on profitability in the Latin American Coffeelands (series begins here). I want to highlight an impressive group of young coffee entrepreneurs, who are asking themselves the question -which the article’s headline proposes to answer definitively- is there any money in high-end coffee for Guatemalan growers?

According to a 2018 report entitled: Investing in Youth in Coffee Growing Communities, there are 106 million young people (15-24) in the region and 1 in 4 are neither working or studying. Many of those that are working are part of the informal economy working in dangerous or exploitative situations. [1] Given that much of Latin America´s rural regions are coffee growing regions, the question is often asked in forums and conferences (including in the cited report) what opportunities can be generated which would allow interested youth to thrive in coffee?

A driven group of youth, from several communities in San Marcos, Guatemala have been looking for their own answers to these questions, searching for a profitable, local, coffee-based livelihood. This group of youth are sons and daughters of smallholder coffee farmers and call home a rural corner of San Marcos near the Mexican border – Guatemala’s oldest coffee growing region. A few years back, they participated in an ANACAFÉ-led course on coffee quality, which piqued their interest in coffee’s sensory experience and organoleptic properties. Subsequently, six of them went on to participate in a Coffee Quality Institute course in Colombia. Remarkably after a little more than a year of experience cupping, three members of the group passed their exams, and added certified Q Grader to their resume, in addition to coffee producer and farm laborer.

As the group was fine-tuning their cupping expertise, they also formed a Savings and Internal Lending Community (SILC) with other youth in the community. A SILC helps its members strengthen financial literacy, accountability, and planning skills. The group saves and lends together, and often invests in small individual or group-based entrepreneurial ideas. Given their common interest, this group decided it wanted to set up a coffee business. The six most committed members of the group began to develop a business plan or, more accurately, multiple iterations of different business plans, to try to arrive upon a profitable business model, which would capitalize their skill set. They participated in a series of business development modules, to hone their model(s), and afterwards launched a coffee collective called PROCAFE.

Over the past 3 harvests, PROCAFE has developed a couple of promising income streams for the young entrepreneurs. PROCAFE has a small coffee quality laboratory. They offer peer-to-peer training modules, and during the offseason, they welcome young, aspiring cuppers, from across the Guatemalan coffeelands as well as quality control employees from smallholder coffee cooperatives (25-30 students in 2019). The multi-day course includes modules which touch on the history of coffee, plant morphology, post-harvest processing, grading and defects, and cupping protocols. Most of their former students continue to work in other departments as cuppers for smallholder cooperatives. PROCAFE provides follow-up support, conducting troubleshooting field visits, at their students’ place of business.

Meanwhile, during the coffee harvest, the group receives parchment samples from their neighbors and family members at the lab. For a small fee, they cup the samples and provide market and quality-oriented farm management feedback to their clients. Investing their SILC savings and some seed capital, they select and purchase some of the most promising lots and sell on to roasters and exporters. During the current harvest, the group sold 30,000 pounds of parchment to Olam. Their operating margin is small (3-10%) but enough to cover their costs and generate a modest profit – above the local trading price – which is divided between their farmer suppliers and the youth. PROCAFE also roasts and distributes coffee locally through Tierra Verde (a grocery home delivery business) and have also sent green samples off to several specialty buyers. Their top lots consistently cup in the 84-85 point range.

“PROCAFE has shown us that there are attractive ways to keep youth engaged in the coffee value chain. The innovative services they offer to producers and cooperatives are not only resulting in meaningful, locally generated, sources of income for these youth, but they are also improving the quality of the coffee in the region” says Rafael Merchan, Program Manager for CRS Guatemala. CRS has supported additional youth training, focused on quality control and entrepreneurship skills, elsewhere in Guatemala and in Western El Salvador. In the Huistas region of Huehuetenango, CRS has noted that, like PROCAFE, these youth groups are filling a knowledge gap, a recurrent obstacle faced by coffee farmers looking to engage with higher value specialty markets.  

Sustained expansion of PROCAFE has not been easy. A few major bottlenecks have slowed the business’ growth. They lack the financing needed to source larger lots of quality coffee, business development mentoring support, and they have yet to completely formalize the initiative, due to the associated costs and scrutiny involved in taking that leap. Another significant challenge is finding buyers that are willing to compensate producers, through premium pricing, for the additional costs involved in adopting practices that improve quality.

Loss of talent has also been an issue. Two members of the group have found work with a local coffee federation and an exporter, respectively. A formal job, with a steady paycheck and career development opportunities is not something common for rural youth in Guatemala. However, when pay is only slightly above the local minimum wage, how much closer are these youth to finding an answer to the question we posed at the top? Can profitable opportunities for driven, entrepreneurial youth be generated within the confines of the current coffee value chain? How do we push more value down to these actors, who are committed to the wellbeing of the supply chain, and also possess a scarce set of skills?

There are worries but the remaining members are optimistic and focused on success in the midterm. “Our plan has always been to continue expanding our reach and improving the price the farmer receives. We have a few buyers and contacts, but we lack the capital needed to source more coffee and grow the business. Given our limited track record, buyers won’t advance us the capital. We also aim to have our own roastery someday, to sell our coffee in the community, our local region, and at fairs, growing our brand along the way.” expresses Guillermo Cano, one of PROCAFE’s founders and Q grade cupper. PROCAFE’s story is at a crossroads, groups like theirs require investment -from industry not just development organizations – to ensure their way forward is viable and profitable.