August 1, 2022

How can we improve access to finance for smallholder coffee farmers?


Smallholder coffee farmers are responsible for between 70 and 80% of the world’s coffee supply. Despite meeting a tremendous global need, approximately 75% of them live in poverty. While coffee farmers face a number of challenges, a lack of access to finance is among the most difficult of them and an issue that exacerbates all others.   

Without access to finance, many coffee farmers struggle to invest in their farms – their businesses – and few can manage their farms enough to make them profitable. Family emergencies or food insecurity can further keep coffee-farming families, with few financial options, trapped in cycles of poverty.

One result is that many farmers are tempted to transition to faster-growing cash crops as short-term alternatives, though this can create longer-term uncertainty for them – and for the coffee industry. In February 2022, the International Coffee Organisation halved its 2020/21 global coffee surplus estimates, making clear that safeguarding global coffee production has never been more important.

To learn more about why smallholder coffee farmers lack access to loans and credit, and how that might change, we spoke with three professionals tied to the coffee industry who are beginning to see change. 

You may also like our article on why affordable finance is so important for coffee producers.

ripe coffee cherries growing on a smallholder farm

Where do the issues start?

Smallholder coffee farmers struggle to access financial assistance for many reasons.

Larissa Céron works at Neumann Kaffee Gruppe (NKG) Sustainable Business Unit in Hamburg. She says the reasons that access is challenging are highly complex. 

“The lack of access to finance is a systemic and circular problem in most lower-income countries,” she says. “As a result of several economic problems, including rising inflation and difficulty accessing credit, financial availability for coffee farmers has decreased significantly over the past few decades.”

Larissa explains that when financial institutions are under pressure because of recessions and other economic downturns, they choose to provide credit to “merchants or sellers of short-term goods because it creates a faster cash flow”. 

Generally, this means lending to businesses and traders in more urban areas, which are perceived as less risky. Rural and longer-term trades, such as the annual production of coffee, are less appealing to lenders. 

Furthermore, as coffee is a seasonal crop that’s dependent on suitable weather conditions, it’s further deemed “high-risk” by lenders – even among other agricultural commodities.

smallholder farmers loading coffee seedlings onto a truck

What are the specific challenges for coffee farmers?

Larissa tells me that as well as high interest rates, extensive necessary documentation, a lack of credit history, and financial illiteracy can all prevent farmers from receiving adequate financial support.

Rachel Nakasiita is Farmer Service Unit (FSU) Manager for NKG Bloom Uganda. NKG Bloom is an initiative operated by NKG to ensure the long-term viability of global green coffee supplies by supporting smallholder farmers.

 “Any agricultural finance that is advanced to farmers is directly related to their productivity,” she says. “But productivity is directly related to climatic conditions.

“If climates become increasingly unfavourable for growing coffee, yields will most definitely be affected, therefore worsening farmers’ risk ratings and further limiting their access to finance,” she adds.

“Coffee farming will get riskier because of the rising number of natural disasters,” Larissa explains. “[We need to invest in] sustainable coffee production which preserves the environment while providing a reliable, liveable income to smallholder farmers.”

José Manuel Calero Moraga is FSU Manager at Becamo. He adds that another reason it’s difficult for coffee farmers to access loans is the fluctuation inherent in coffee pricing. 

Fluctuating prices makes it harder for farmers to estimate their income, which makes it more difficult for them to successfully apply for credit or loans.

“In practice, this means that financial institutions see the coffee sector [as too risky to invest in], especially given the risks associated with the instability of the coffee market, the impact of climate change, the lack of smallholders’ business capacities, and the lack of guaranteed returns on investment,” Manuel says.

Additionally, farmers are usually paid in one lump sum, which is difficult to budget over the remaining 12 months until the next harvest. Even if someone were to perfectly budget their money each month, an urgent, unforeseen repair or other serious expense could be financially devastating.

female smallholder coffee farmers

Improving access to finance

Manuel notes that, while still rare, there are initiatives out there working to improve access to finance for coffee farmers.

He explains that in particular, NKG Bloom works with smallholder farmers (generally those who cultivate coffee across 30ha or less) to provide “access to technical assistance, which supports good farming practices, the optimisation of resources including finance, and improves resilience to climate change”.

NKG Bloom operates in Honduras, Mexico, Kenya, and Uganda to support farmers with the financial assets and resources they need to continue viable coffee production.

Rachel adds that alongside technical assistance and financial support, NKG Bloom also helps farmers improve their financial literacy. She says that as when they do this, the emphasis is on a localised perspective for every community.

“NKG Bloom provides seasonal-based and long-term finance support, whether that’s through cash or other expensive resources such as fertiliser,” she says.

In Uganda, Rachel says that “the impact of the work that [they] carry out spans across 17 districts and supports more than 25,000 farmers”.

Rachel also notes that the findings of an independent study concluded that “after participating in the NKG Bloom scheme, farmers registered an average 187% yield increase, alongside a net income increase of 189%”.

Ultimately, initiatives such as NKG Bloom not only support farmers to increase coffee quality and productivity, they also reduce the risks associated with farm management and improve their financial resilience.

Manuel also explains that personalising loan agreements is important to improve financial access for farmers, as this can take into account average sales figures and individual credit history. 

“Through this system, we can provide better access to finance for producers, because [we know their financial history and can accommodate for this],” he says.

Rachel adds: “Farmers can also create profiles for productivity and loan performance, which they can then use as track records to prove capacity and credit behaviour. These profiles can be used as a basis to obtain finance from other institutions.”

male smallholder coffee farmer carrying seedlings

What about long-term solutions?

Beyond initiatives such as NKG Bloom, partnership-based solutions, sometimes between unexpected parties, are beginning to improve financial access for coffee farmers in the long term.

“[Producers need] better and more accessible [finance] for their farms and crops,” Larissa says. “[With more] diversity in financing, farmers can increase farm productivity and invest in their land and assets.”

While achieving this may seem to be easier said than done, Manuel explains that partnerships are one way forward.

“The coffee industry can improve access to finance through more partnerships with banks,” Manuel explains. “Coffee exporters can be anchor companies to attract finance for producers with good financial conditions.

“In addition, these anchor companies can develop financing systems without the need for bank intermediation,” he adds. “This can often make financing more expensive and can increase the bureaucracy associated with loans.”

As well as this, however, development agencies and non-governmental organisations (NGOs) can collaborate with the private sector to bridge the gap in agricultural finance. 

At government level, a renewed focus on market diversification by promoting more domestic coffee consumption can help by adding more value and improving market access. 

“By focusing on this, we can increase the demand for coffee, which could help to stabilise prices and reduce the risks associated with coffee production,” Rachel explains.

“Improving access to finance for smallholder farmers is not a one-person job,” she adds. “There would be much more progress if all supply chain actors joined forces to support farmers.”

However, while increased access to finance is essential for smallholder coffee farmers to improve their livelihoods, sustainable coffee production is dependent on much more.

“[Farmers need to develop skills so that they can] make more strategic decisions based on data,” Manuel tells me.

An increasing focus on improving gender equity is also essential. The contributions from women in coffee production are often not acknowledged in the same way – despite the fact that women can carry out up to 70% of physical labour on coffee farms. 

Furthermore, because of a lack of education about gender equity, women in coffee production can have limited financial access compared to men and may make significantly less money from coffee farming as a result.

“Through NKG Bloom’s gender programme, we carry out household visits and hold seminars to address issues of gender inequity in communities where we work,” Rachel tells me. “As a result of this training, we have started the conversation of bringing women to the table of financial access.”

harvested ripe coffee cherries grown on a smallholder farm

We know that there are plenty of challenges that coffee farmers face, and that a distinct lack of financial access is certainly a major one. Not being able to access affordable credit makes it more difficult than ever for farmers to sustainably invest in their future. 

Although these challenges cannot be surmounted easily nor resolved overnight, there are an increasing number of initiatives which are forming to raise awareness and generate partnerships. Often, this means improving financial literacy, and making both short and long-term loans available to farmers, as well as a range of other credit facilities as necessary.

If initiatives like these can scale successfully and drive action across the supply chain, as well as at government level, more and more farmers will be empowered to access affordable credit, scale up their farms, and move from subsistence agriculture to profitable farming.

Enjoyed this? Then read our article on why more producers don’t market their own coffee.

Photo credits: NKG Bloom

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