EcoLogic Finance

"Loan assists coffee growers; Fund brightens a bleak market"
Miami Herald - March 6, 2002 (front page of Business Section)
by Kevin G. Hall

QUILLABAMBA, Peru - Coffee growers on Santo Domingo Mountain in this high jungle region of Peru, sandwiched between the snow-capped Andes and the steamy Amazon River, are struggling to survive in an era of sinking prices by aiming for the luxury end of the international coffee market.

Oddly, they are rooting for a strong harvest thousands of miles to the north in Mexico.

Farmers in both countries share a revolving $150,000 loan from EcoLogic Enterprise Ventures, a Massachusetts-based ''green'' fund.

When there is a good harvest in Mexico, farmers there can repay the loan and EcoLogic passes the money along to farmers in Peru, where the harvest is just beginning. The farmers produce high-value specialty coffees using environmentally sound methods and sell them to importers in the United States.

The loan may seem puny. But shared by hundreds of poor family farmers in mostly indigenous regions, it goes a long way toward saving them from the punishing low prices on the bulk coffee market.

The loan EcoLogic provided aims to eliminate the loan sharks called ''coyotes'' who prey on small family farmers, demanding high interest rates or a high percentage of the harvest in exchange for a few hundred dollars to pay coffee pickers and get the beans to market.

The program is a rare bright spot in a bleak global coffee market, where prices have plunged to a 70-year low of 48 cents a pound.

''You should not have to export misery, and that is what we are doing, exporting misery'' with these prices, the former president of coffee-rich Costa Rica, José María Figueres, said last year.

EcoLogic's lending works in tandem with ''socially responsible'' importers who are willing to pay two or almost three times the going rate for coffee.

Cooperatives of small family farmers must, in turn, reinvest in healthcare, education and other community needs. And the individual farmer must protect shade trees for migratory birds; cultivate coffee plants using organic, or chemical-free, methods; and generally preserve the surrounding ecosystem.

The growers' products are sold as specialty coffees, the fastest-growing and most-lucrative segment of the coffee market. Specialty coffees are purchased from the farmers at $1.26 to $1.41 a pound.

EcoLogic's loan, which carries 12 percent interest, is shared by COCLA, an umbrella for 52 small cooperatives around Quillabamba, Peru, and Productores de Café la Trinidad, which represents three Mexican cooperatives in the southern state of Oaxaca. Also sharing the loan is La Unión de Huatusco, a cooperative in the state of Veracruz. EcoLogic has issued nearly $2 million in similar loans in Central America and South America.

On Santo Domingo Mountain, farmers earn $400 to $1,000 a year on simple chacras, or 5- to 10-acre plots.

''It pays our day-to-day costs,'' said Federico Victoria Porroa, 68, leaning on the wall of his hut reviewing harvest receipts. Until conventional coffee rebounds, the COCLA farmer said, life remains tough for small growers.

Justino Roque Teto, 70, of outside Quillabamba, decided to convert all his 3,000 coffee bushes to organically grown methods. Demand is not yet strong enough to take the whole harvest, but Roque is betting that demand will grow for organic coffee beans and he wants to be ready.

''I sure hope this works. It's a lot of work; it is fastidious,'' Roque said. The alternative, he added, is conventional coffee and its low prices. ''You can't even pay day laborers now,'' he grumbled.

Farmers generally can place up to a quarter of their crops to the specialty market.

''Without financing, these communities cannot invest in scaling up their operations; they cannot invest in quality'' for the specialty markets, explained William Foote, EcoLogic's director.

Quality is the key word. Small farmers have no chance in the open global coffee trade, where nations such as Brazil, Vietnam and Colombia flood the market and drive down prices. But specialty coffees, in their infancy in Mexico and Peru, are the fastest-growing segment of retail coffee sales, estimated by the Specialty Coffee Association of America to top $8 billion annually.

''If you really want to get into that good market, the Starbucks Corp. and those guys, you have to learn to produce quality, and that means a lot of investment in infrastructure,'' said Jorge Cuevas, head of Rain Forests Trading Co. in Oaxaca. Rain Forests administers the COCLA loan to the Mexican cooperatives and negotiates directly with U.S. coffee roasters.

Starbucks Corp., under protest from promoters of the ''alternative trade'' concept, agreed last year to purchase more than 1 million pounds of ''fair trade'' coffee by late 2003 at $1.26 per pound.