For the smallholder farmers who grow most of the world’s coffee, an outbreak of coffee leaf rust can wreak havoc on family finances. Diseased trees have to be pulled up and replaced with healthy seedlings. New soil and water management practices may be necessary to prevent a repeat outbreak of the fungus. Income grinds to a halt until the young trees start producing beans—and that can take years.
“The right farming practices can bring coffee back [after an outbreak], but that requires significant investment,” says Ben Corey-Moran, director of coffee supply for Fair Trade USA. “Who’s going to lend to farmers who have no collateral other than the title to their land?” Recent outbreaks of coffee leaf rust have wiped out thousands of acres of crops in Latin America. And growers who produce cocoa, cashews, and other niche export products routinely confront similar hardships. “They all need new financial products that conventional banking doesn’t offer,” Corey-Moran says.
This past April, seven social impact lenders launched the Council on Smallholder Agricultural Finance (CSAF). The aim of CSAF is to build this nascent field and to attract additional capital to the “missing middle” space that lies between microfinance and commercial lending. “We’re all impact agricultural lenders who share the same theory of change,” says William “Willy” Foote, CEO and founder of Root Capital, a nonprofit social investment fund. “We come from different institutional backgrounds but share the mission of growing prosperity in these frontier markets.” CSAF members include—along with Root Capital—Alterfin, Oikocredit, Rabobank’s Rabo Rural Fund, responsAbility Investments AG, the Shared Interest Society, and Triodos Sustainable Trade Fund.
In 2013, the seven organizations lent a total of $360 million. By 2016, they hope to increase that amount to $500 million. “That’s still a drop in the bucket,” compared with the $22 billion global market for small and mid-sized agribusiness, Foote notes.
Michaël van den Berg, fund manager for Triodos Sustainable Trade Fund (which is part of Triodos Bank, a Dutch firm), compares the current state of smallholder agricultural lending to the microfinance sector in its early days. “We all want to do good. We all want make a positive change through finance,” he says. As the microfinance sector has matured, it has developed standards, formulated best practices, and adopted common impact measurements.
CSAF members are joining forces to do similar field-building work, even as they continue to compete for customers in remote corners of the world. “Collaboration is likely to be messy, complex, maybe even awkward,” Foote acknowledges. All the same, he says, council members aspire to “crowd in the competition”—to “show that there are market opportunities out in the countryside.”
The council will establish itself “by getting concrete things done together,” Foote says. Like their counterparts in the microfinance field, CSAF members will develop a shared set of metrics for tracking social and environment impact. Doing so will simplify reporting for smallholder farmers, many of whom now have to track multiple sets of outcomes for multiple lenders. Foote also expects the council to refine best practices for transparency and inclusive finance. “This is a team sport,” van den Berg says.
Many of the ideas that will drive CSAF’s efforts are likely to come from farmers themselves. “Our customers are very vocal. These are men and women who know what they want,” says van den Berg. “They are businesspeople who have standing in their communities. We interact [with them] as equals.”
New pressures on smallholder farmers will widen the scope of what CSAF members must do to support them. A recent report from the Specialty Coffee Association of America, for example, suggests that farmers will experience higher levels of food insecurity as a result of climate change. Already, according to CSAF, many smallholder families cut back on meals during lean growing seasons. In response to that problem, CSAF plans to leverage its relationships with technical assistance providers “to improve food security and support farmers in income diversification,” Foote says. “None of us can do this work by ourselves. We have to work together.”
Read more stories by Suzie Boss.