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The Intimate Relationship Between Farmers, The Land and Climate

Dan McQuillan
February 16, 2023
Key Insight

A damaging fungus, coffee leaf rust (Hemileia vastatrix), swept across the coffeelands of Central America from 2012-2014. It left withered plants and battered livelihoods in its wake. Smallholder farmers already living on the edge, lost 30—50% of their coffee production (read: their income) in a matter of months. Food insecurity stalked the region as a result, since farmers did not have the cash needed to buy the basics for their family, or to pay farm labourers. It took several years, and millions of dollars of investment, for coffee production to recover in the region. Warmer nights, and cooler days were a common denominator during the latest outbreaks of rust in Central America and Colombia. Leading  experts warn that these severe outbreaks of rust were “enhanced by weather conditions consistent with climate change.”[1]

Members of Todos Hermanos Cooperative, including the Ramirez brothers, visit Edwin Fernando Diaz's, coffee nursery in Olopa, Chiquimula, Guatemala

Of course, farmers have no control over nighttime or daytime temperatures at a macro level, in much the same way agribusinesses or cooperatives can’t influence the frequency of extreme weather events, or whether this growing season will be one of abundant rains or one of drought. Nonetheless, farmers’ incomes, and agribusinesses’ outcomes, are intimately tied to the frequency and intensity of these climatic events. The outsized impact climate can have on agribusinesses’ and farmers’ bottom line was one of the unique challenges of investing in agriculture mentioned in the introductory post in this series. This challenge has only been exacerbated in recent years by climate change.

Not surprisingly, given the devastation of the 2012-14 rust outbreak, many coffee coops in Central America were unable to honour their purchase contracts with their buyers during those years. I was working on coffee projects in Guatemala during those years, and I experienced firsthand the acute and prolonged impacts climate and weather can have on farmers and agricultural businesses. Needless to say, if you had loaned money to a coffee co-op during those years, they likely did not have the cashflow to pay you back until production recovered a few agricultural cycles later. There are few other industries and sectors where volatile and recurrent climate-driven impacts can take such a big bite out of revenue. But if you believe that investment in the agricultural sector is important for the planet, society, and the millions of families who live from the land – as we most certainly do – then these challenges must be understood, and then overcome.

Impact finance can spur climate adaptation, reduce risk

Carlos Cano transports seedlings from the nursery to his farm for transplant.

CRS’ impact investment fund for agribusinesses, Isidro, engages with SMEs making significant investments, which include a healthy dose of climate-related risk. Flor de Café, a coffee cooperative in Northern Nicaragua, is one such partner. They are both a larger (+$1 M of revenue) and more established (+20 years of operations) client than Isidro’s typical profile. However, they have proposed an ambitious plan to improve productivity and mitigate climate risks. The cooperative aims to renovate and rehabilitate the coffee farms of the majority of their 800+ members. These farms cover an area of more than 1,000 hectares (or +2500 acres). Coffee plants are most productive during their years 5 to 15. To maintain coffee farm production and yields, it is essential to periodically rehabilitate and renovate the farm- either stumping plants or planting new coffee. As plants get older they are more susceptible to climate stressors. New coffee varieties brought to market over the past 10 years are also often better suited to the changing climate conditions in the region. However, even though the importance of coffee renovation is clear, due to the delayed return on investment (2-3 years once plants are producing again), smallholder farmers are unable to finance the improvements needed to mitigate climate stress with cash on hand. Furthermore, despite the cooperative’s satisfactory financial position, and the potential impact of this investment on the business’s bottom line, the well-being of their members, and the health of the land, Flor de Café has struggled to find an investment partner willing to support them with this multi-year initiative.

Sensing there was both an opportunity to be had and a gap to be filled, Isidro has worked with the cooperative to design a bespoke financial product and an accompanying technical work plan that is aligned with the ambitions and business realities of the organization, while adequately managing climate-related risks. I’d like to highlight a few critical features of this proposed $200,000 investment in the cooperative’s rehabilitation and renovation work.

Basic features of the deal

  • First off, the tenure of this investment will be our longest to date. We have proposed a patient 5 to 6-year timeframe for the investment. This timeline gives the cooperative and its farmers adequate time to remove old plants, plant new ones in a staggered fashion, withstand some up and down years, and ensure the new plants are established and producing.
  • Second, the repayment plan has been structured to work for coffee farmers and the cooperative. The initial 100 farmers will make their interest and principal payments directly to the cooperative, leveraging the organization’s already established microcredit department. During the first 2 years, while the initial wave of new plants are still not producing coffee, farmers will make only interest payments. Principal payments will begin after the 3rd agricultural cycle. The cooperative will make repayments once a year, after the harvest and export contracts are settled.
  • Finally, we have developed a technical assistance plan linked to the investment. Each farmer who invests in renovation and rehabilitation will receive recommendations from the cooperative on which varieties of coffee to plant; these recommendations take into consideration the region’s micro-climate, the land, and market preferences. In addition, each farmer will receive training and ongoing field support on regenerative agriculture;  essentially a package of soil and water management practices which can be implemented on-farm to boost yields and help mitigate climate concerns like warmer temperatures, erratic rains, and prolonged dry spells. This technical assistance package, which targets practical agronomic techniques and considers coffee varieties best suited for the local environment and a changing climate is critical to success.

It will be a few years before we are able to conclude whether the proposed investment was crafted appropriately to ensure both the growth of the business and mitigate looming climate-related risks. Nonetheless, for the time being, we believe the financial product, and the accompanying technical assistance program that Isidro and Flor de Café have designed, set the cooperative up to tackle one of the unique challenges that agribusinesses face.

[1] Avelino, J., Cristancho, M., Georgiou, S. et al. The coffee rust crises in Colombia and Central America (2008–2013): impacts, plausible causes and proposed solutions. Food Sec.7, 303–321 (2015). https://doi.org/10.1007/s12571-015-0446-9