I was walking up a steep hill in 100 degree heat in Northern Nicaragua earlier this month, with 25 of our social enterprise students, as part of our senior capstone class. We were in the second poorest country in the Western Hemisphere, and in one of its poorest regions, when we came upon a sign saying that Green Mountain Coffee, through its corporate social responsibility program, had supported a poor smallholder farmer cooperative with community investments. A “biodigester” was among those investments, which allows the farming community to protect its remarkable natural habitat by processing the waste from coffee picking and cleaning in an environmentally friendly way. As we walked around the community and talked to its poor but industrious people, we could immediately see the impact of Green Mountain’s enlightened supply chain policies on their daily lives.
More than 25 million small farmers, 90% of whom are poor and live in developing countries, provide the world’s coffee. Coffee is the world’s second largest commodity product (oil is the largest), and is a $20 billion agricultural export market, driven by the 500 billion cups of coffee consumed each year. For many years, smallholder coffee farmers or so-called “growers” were financially abused by local intermediaries often called “coyotes”, who buy at rock bottom prices (often less than $1 a pound) and resell at much higher prices to roasters and retailers like Nestle and Dunkin Donuts. These often predatory middle-men add little value but capture much of the margin rightfully belonging to the producers. To address this inequitable allocation of margin in the supply chain, farmers organized into cooperatives, and with the help of innovative finance organizations like Root Capital of Cambridge, they began to sell directly to the big coffee companies, bypassing the intermediaries and securing better prices and more profit margin.
Root Capital is a world class social enterprise that provides innovative financing solutions and tools to the world’s poor farmers, including coffee farmers in Nicaragua. By making uniquely structured loans to farming cooperatives in partnership with the multinational buyers like Green Mountain and Starbucks, Root Capital enables poor farmers to maximize the potential of their tiny farms, producing consistently higher quality coffee that draws premium prices from the best companies in the marketplace.
Today, “fair trade” rules allow cooperatives to benefit from the security of a floor or minimum price for their coffee, as well as a premium to be reinvested in improving their communities. As of this writing, fair trade Arabica coffee (the premium quality bean that is most often grown in higher elevations like the Nicaraguan highlands) sells for about $1.45 to $1.50 per pound, with a fair trade floor price of $1.40 per pound and a premium for community investment of 20 cents per pound (30 cents if its certified organic). Ten years ago, when fair trade was not yet a developed market, producer prices for coffee were as low as 45 cents per pound, far below the cost of operating their small farms. However, only about 2% of the coffee market today is fair trade. In a $100 billion retail coffee market, $2 billion is certainly a meaningful amount but there remains a very long way to go before an equitable supply chain is fully secured.
The Nicaragua coffee farmer cooperative we visited that day called “Danilo Gonzalez”, named after a boy killed in the Sandinista war and a member of the cooperative union known as CECOCAFEN, now sells their harvested coffee beans directly to companies like Green Mountain Coffee, mostly as fair trade certified. The community, including struggling families headed by enterprising women in desperate search for opportunity, have benefitted from this business partnership by way of investments of their fair trade premium in local projects designed and approved by the cooperative in areas like education, clean water and sanitation.
However, despite this progress, the farming families of Danilo Gonzalez will suffer this year, as a plant disease or blight called “roya” has infested coffee plants throughout Nicaragua and elsewhere in Central America. Farmers are losing half or more of their harvest to the disease, without any crop insurance to offset the losses. Social enterprises like Technoserve are working diligently in providing technical and managerial consulting assistance to enable poor farmers to address this problem in the near-term and plan longer term for a recovery. This coffee disease would have a devastating impact across the Americas, where 2/3 of all coffee is grown, without the work of Technoserve and others who are dedicated to improving the lives of poor farmers.
Our students, with the help of The Barker Foundation and David and Denise Johst, will be providing grants to poor coffee farmers and other disadvantaged groups in Nicaragua to help them find self-reliant, enterprise solutions to the challenges they face. This grant program is one of several we offer to undergraduates so that they can apply what they learn first in the classroom and later in the field, to addressing real-world problems through enterprise solutions.
Not everyone can write a check or offer an opportunity to someone in need in a distant place, like Nicaragua. But most people can make an informed choice to buy products that are produced by companies committed to improving the lives of poor people and communities in their supply chain. Socially responsible and well managed businesses like Green Mountain Coffee and leading social enterprises like Root Capital and Technoserve can and do lead meaningful change in the world.
In this case, one cup of coffee at a time.
Disclaimer: This article was not produced, approved or endorsed by the three referenced companies.