Coffee is a heavily traded global commodity, and high-quality arabica beans are in high demand and the fastest-growing segment of the market. The demand from consumers for certified coffee is also growing, and the price they are willing to pay appeals to traders.
Smallholder coffee farmers have had to adapt to several new standards that include environmental certifications establishing whether the coffee is organic, bird-friendly, shade-grown, or affected by social issues. Utz Certified, 4C, and Starbucks' CAFE Practices are just a few of the organizations that provide guidance on best practices for coffee growing. These certifications have the potential to create value for smallholders, as certified coffee carries a market premium. However, complying with rigorous and sometimes varying certification criteria is generally more difficult for small farmers, so providing targeted, direct support for them through financing and training is needed.
Ecom is an international commodity trading company, ranked third among the world's largest coffee dealers with a 13 percent world market share. Ecom's major customers include Nestlé, Starbucks, Kraft, Procter & Gamble, and Sara Lee. Despite its success, Ecom faces a number of issues in its coffee supply chains, including:
Low productivity from inadequate tree husbandry and insect problems
Poor quality due to equipment
Absent or ineffective agricultural extension services
Inefficient supply chain structures between farmers and exporters
Limited access to finance for farmers and market intermediaries in the supply chains, which hinders their ability to make needed improvements
IFC has developed a strong relationship with Ecom through its Investment and Advisory Services in several countries. IFC and Ecom began working together in Central America to strengthen farmers’ coffee-growing practices in order to increase productivity and meet industry quality as well as environmental and social standards.
IFC has done four investments with Ecom totaling $154 million. IFC’s latest transaction with Ecom was a $50 million quasi-equity investment.
Currently IFC has six active projects with ECOM in the coffee sector and is planning additional projects in the cocoa sector.
The IFC/Ecom model established farmer training centers, operating under local subsidiaries of Ecom, where sustainable farming techniques, financial literacy, and quality assurance methods are taught to local smallholders. IFC and Ecom focus on educating farmers on best practices in seed selection, nursery and soil fertility management, pest control, and farm management. As farmers incorporate what they have learned, they can advance toward certification, which can lead to access to financing and longer-term supply contracts with Ecom.
Based on the program's positive results in Central America, a $55 million global financing facility was developed to serve six other coffee-producing countries: Indonesia, Vietnam, Papua New Guinea, Kenya, Tanzania, and Uganda. These countries have similar issues with smallholder supply chains, and country-level projects establish farmer training centers in local environments to address those issues.
Results & Impact *
The partnership between Ecom and IFC has been able to achieve impact on a significant scale. To date, the farmer training centers have instructed more than 40,000 coffee farmers, with nearly 15,000 of them achieving certification. Those certified farmers are managing 32,676 hectares with sustainable practices, and have produced 81,000 metric tons of certified coffee that has been bought by Ecom. This has generated an additional $13.8 million in total sales revenue for the smallholders. As the farmer training centers continue to operate, these numbers will increase.