How do coffee cooperatives support smallholder coffee farmers in Peru?

Marion Wedegärtner from Oikocredit's West German Support Association recently visited the Aprocassi cooperative in Peru and shares her thoughts on the country’s coffee sector.

Dalinda Castillo is the president of the Women’s Committee of the Aprocassi cooperative, one of Oikocredit’s coffee partners in northern Peru. The women farmer-members grow coffee but also own the land.

What’s more, they also run a cafeteria in San Ignacio, which was one of the cities visited by members of Oikocredit’s 2018 Study Tour to Peru in December. The San Ignacio cafeteria is a place where people meet and enjoy life’s simple pleasures.

Dalinda Castillo invites us to sit down for a chat. Later on, she will accompany us to Francisco Pintado Luna’s coffee farm, a one-hour uphill drive on a dirt track and then, under the scorching sun, on foot downhill into the rain forest.

Dalinda works her plantation alone but her eldest children also help out. The youngest still live at home, while the older four have left. Dalinda explains: “Coffee is a premium product; prices are higher than those of other agricultural products. Also, I come from a family of coffee growers.”

This explains why Dalinda works in the coffee business. Her plantation is only one hectare in size, which is half average size owned by Aprocassi members. The cooperative currently has around  580  members, 87 of whom are women.

Dalinda tells us that she cannot live from coffee-growing alone. She therefore has livestock, grows vegetables and even works in Aprocassi’s administration.

The cooperative is her community; the members support each other. Dalinda says: “We all stick together, the producers – men and women – all kind and strong people.”

10% for the producers

Solidarity is much needed. The effects of climate change and the related high price risks in the coffee sector make life very difficult for small-scale farmers in the southern hemisphere.

It is, first and foremost, large corporations and countries in the northern hemisphere that benefit from the coffee business – at the expense of producers and producer countries, as shown in a study published in October 2018 by the research institute BASIC on behalf of the Commerce Equitable France and Max Havelaar France fair-trade organisations, and the “Repenser les filières” network¹. “The producing countries only receive a small percentage of the value generated within the industry while at the same time carrying the lion’s share of the social and ecological burden of the supply chain”, the report stated.

In 2018 the world market price for Arabica green coffee dropped, for the first time in 12 years, to below one US dollar a pound. The persistent price pressure is not just a result of exchange-rate fluctuations, it’s also due to record harvests leading to surplus production in countries such as Brazil, where coffee is grown in massive quantities on huge plantations.

Finest quality from Peru’s north

In Peru, coffee is mainly grown by small-scale farmers. If they are to have any kind of fighting chance against the large global corporations, most of these smallholders choose to  join cooperatives.

This is also the case in the region around San Ignacio in the department of Cajamarca where around 40,000 families depend on coffee-farming to make a living.

The northern part of the region produces the finest Peruvian coffee. On average, an Aprocassi coffee-farming family owns two hectares of land and earns around US$ 3,000 a year.

This modest income is hard-earned: often, coffee-farmers have to work from 4am until 10 at night, as Francisco Pintado Luna explains when showing us around his plantation:

“During the harvest season, we basically have to beg for helpers,” he says. If he cannot find enough workers (excluding friends and family) the overripe coffee beans may rot, and pests and plant diseases can spread.

Francisco’s family has no savings, their income is just enough to live on and to provide an education for their children. It therefore comes as no surprise that Francisco is almost proud to point out that none of his eight sons will become a coffee farmer.

Customers in Peru and abroad

Francisco produces premium organic coffee and plans to diversify his produce in order to enhance its quality. Aprocassi assists him in his endeavours by providing technical support, together with the option of taking out a loan via its credit department Aprocredi.

According to Francisco, the fact that he grows organic coffee helps him make ends meet. “I get higher prices and also get support for agro-forestry cultivation when I plant shade trees.”

Aprocassi has built both a national and international customer base to guarantee high-quality organic products at fair-trade prices. Such certification provides additional security for consumers while ensuring higher prices for the growers.

Aprocassi is also lobbying the Peruvian government to introduce new curricula for agricultural colleges. As with all coffee-grower cooperatives, Aprocassi wants to open up alternatives for young people in order to put a stop to the rural exodus.

“Oikocredit has been an important partner for our cooperative since 2012,” says Aprocassi’s president, Wakenbahuer Neyra. The current loan covers up to 70% of the costs of the annual harvest.

Suffering the effects of climate change

Oikocredit is increasingly focusing on the coffee sector, also in Peru. “Investments in agriculture are high-risk, but this is the area where we can really have an impact,” points out Werner Thorne, portfolio manager for Oikocredit in Latin America, alongside his colleague María Del Carmen Gallo, who is responsible for agricultural projects in Peru.

Apart from visiting local communities, Oikocredit’s office in Peru also hosts an annual meeting in Lima for its agricultural partners to exchange experiences and share knowledge.

Thorne: “It is highly encouraging to see how a small coffee-grower cooperative, which initially had 150 members producing 7,000 sacks of coffee, has steadily grown since the start of its partnership with Oikocredit. Now 450 small-scale farmers produce 25,000 sacks of premium coffee per year!”

However, coffee production in Latin America has been declining significantly over the past few years, in Peru alone by up to 20%. This is primarily due to climate-induced fungal diseases, such as coffee leaf rust.

To help its partners cope with such problems, Oikocredit provides special terms for their loans, such as variable repayments in the event of failed harvests and crop losses. In addition, technical assistance is offered to help smallholder famers adapt to changes in climatic conditions and respond to fluctuations in coffee prices.

By way of example, Aprocassi was one of the coffee cooperatives that participated in Oikocredit’s Price Risk Management programme for its partners in Latin America in early 2018. Coffee cooperative representatives were given training in managing coffee-price volatility and risk.

Organic certification and fair trade – ideally both – result in a greater number of cooperative unions, ecologically sound farming and higher yields for the producers, as the BASIC study demonstrated.

However, this alone is not enough to establish sustainable value chains in the coffee sector – legislative changes, combined with incentives and sanctions, are also needed. The list is long.

That said, Oikocredit has long been providing the very support that producer countries need.

The above article was adapted from the original version of this story (published in German) in Oikocredit West Germany’s “Magazin” 02/19

¹ Coffee: The Hidden Crisis Behind the Success Story - Synthesis (https://lebasic.com/wp-content/uploads/2019/01/BASIC_Coffee-study_Synthesis-report-2.pdf) and http://www.forum-fairer-handel.de/nc/aktuelles/artikel/kaffee-in-der-krise/. The “Forum Fairer Handel und TransFair” has also published an abridged version of the study in German (ibid.)