Public Sector Financial Institutions in Coffee producing Countries: The Experience of FIRA EXPERT PANEL ON COFFEE SECTOR FINANCE LONDON, ENGLAND 21 SEPTEMBER 2010 Contents BACKGROUND COFFEE IN MEXICO APPLICATION OF THE FIRA MODEL RESULTS AND FACTORS CONTRIBUTING TO PROJECT SUCCESS 1
FIRA is an institution with around 55 years of experience in providing integral support for rural development needs 4 Federal Government Trusts administered by the Central Bank FONDO (1954) FEFA (1965) FEGA (1972) FOPESCA (1988) FIRA s main functions include: Credit Guarantees Training Technical assistance and Technology transfer FIRA provides financing as a second tier development bank but its operations are backed by an integral support system 1.250 Employees 136 Offices 5 CDT 2.114Trained technicians 261 Qualified officials FINANCIAL BANKING INTERMEDIARIES (IFNB) 67 IFNB 20 BANKS RURAL FINANCING FINANCIAL BANKING INTERMEDIARIES (IFNB) FINANCIAL BANKING INTERMEDIARIES (IFNB) FINAL CREDIT RECIPIENTS 2009 1,6 million persons BENEFICIARIES BENEFICIARIES 2
FIRA funding at the end of 2009, including non funded guarantee operations, totalled 104 billion Mexican pesos (US$7,7 billion) 120.000 FIRA FUNDING, 2004 2009 in million pesos TCMA = 25,7% 100.000 80.000 60.000 TCMA = 7,2% 40.000 20.000 SOURCE: FIRA 2004 2005 2006 2007 2008 2009 Funding Non funded Guarantees Contents BACKGROUND COFFEE IN MEXICO APPLICATION OF THE FIRA MODEL RESULTS AND FACTORS CONTRIBUTING TO PROJECT SUCCESS 3
Coffee production in Mexico is concentrated in States with high and very high marginalization rates, which makes the potential impact of support to the production chain of particular interest for public policy MARGINALIZATION IN COFFEE PRODUCING STATES, 2005 Degree of marginalization Very high High Average Low Very low COFFEE PRODUCTION BY STATE, 2009 Percentage shares San Luis Potosí Over 30% 20% 29% 5% 19% Below 5% Nayarit Jalisco Colima Edo. Méx. Hidalgo Puebla Veracruz San Luis Potosí: 1.3% Guerrero SOURCE: FIRA, ON THE BASIS OF INFORMATION PROVIDED BY CONAPO Oaxaca Chiapas Nayarit: 2.0% Jalisco: 0.3% Hidalgo: 2.8% Puebla: 18.1% Veracruz: 23.2% Colima: 0.2% Edo. Méx: 0.1% Guerrero: 3.6% SOURCE: FIRA, ON THE BASIS OF INFORMATION PROVIDED. BY SAGARPA Oaxaca: 11.5% Chiapas: 36.9% Characterization of primary coffee producers in Mexico indicates diverse and complex problems ADVANCED AGE 51 YEARS EXPERIENCE HIGHLY DEPENDENT ON THIS ACTIVITIY 24 YEARS AS A PRODUCER 70% DEPEND MAINLY ON COFFEE GROWING SMALL SCALE 3,0 HECTARES LOW PRODUCTIVITY 7,8 QUINTALES OF PARCHMENT/HA LIMITED SUSTAINABLE ACTIVITIES LOW EDUCATIONAL LEVEL 45% PRACTICE REPLACEMENT OF PLANTATIONS 5 YEARS OF SCHOOLING, 65% OF COFFEE PRODUCERS ARE INDIGENOUS 4
Contents BACKGROUND COFFEE IN MEXICO APPLICATION OF THE FIRA MODEL RESULTS AND FACTORS CONTRIBUTING TO PROJECT SUCCESS In accordance with the FIRA Model, agricultural and rural development is based on sustainability criteria in the use of resources SUSTAINABILITY ENVIRONMENT ECONOMY SOCIETY 5
FIRA is more than a good credit provider: It provides a range of services that have a direct impact on a number of sustainable projects ECONOMY SOCIAL ENVIRONMENT TECHNOLOGICAL PACKAGES FAIR TRADE PRICES PRICE COVERAGE GUARANTEE SCHEMES PROFITABLE PROJECTS TRAINING TECHNICAL ASSISTANCE PRODUCER ASSOCIATIONS ACCESS TO FINANCIAL SERVICES WELLBEING LEVELS SOIL CARE ORGANIC PRODUCTION In general, the FIRA Model is for developing suppliers based on producer organizations, encouraging commercial activities and medium term primary production CERTIFYING FINANCIAL INTERMEDIARIES Credit recovery (Retention) MARKETING D Gu iscount arantees Collection (Dry parchment co offee) Technological Support (Training, Field travel) PRODUCER ORGANIZATIONS 6
Contents BACKGROUND COFFEE IN MEXICO APPLICATION OF THE FIRA MODEL RESULTS AND FACTORS CONTRIBUTING TO PROJECT SUCCESS FIRA has managed to provide support for the coffee chain with financing of nearly 2.800 million Mexican pesos in 2009 (slightly over US$200 million) but there is still ample potential for expansion 3.000 FIRA FUNDING IN THE COFFEE CHAIN, 2004 2010 in million pesos and percentages 3,5% 2.500 3,0% Million pesos 2.000 1.500 1.000 500 2,5% 2,0% 1,5% 1,0% 0,5% rcentage of coffee chain in total funding Per 0 2004 2005 2006 2007 2008 2009 2010* 0,0% Funding for coffee chain Share of coffee in total FIRA funding * SITUATION AT 30 JULY 2010 SOURCE: FIRA 7
The impact of coffee projects based on contracted agricultural schemes and development of suppliers can increase earnings as much as 1,7 times 45.000 IMPACT ON EARNINGS OF COFFEE PRODUCERS, 2006 in pesos per producer 40.000 35.000 170% 30.000 25.000 20.000 35% 15.000 10.000 5.000 SOURCE: FIRA CURRENT SHORT TERM LONG TERM Financial support has focussed on Federal bodies with the highest marginalization rates, reinforcing the overall impact of FIRA operations 40 IMPACT ON VALUE OF PRODUCTION AND MARGINALIZATION RATES Percentages and values of marginalization index n value of coffee production, 2008 (%) 35 30 25 20 15 Share o 10 5 MEXICO VERACRUZ CHIAPAS TABASCO OAXACA GUERRERO HIDALGO PUEBLA NAYARIT 0 COLIMA 0 5 10 15 20 25 30 35 Marginalization rates (Place) SOURCE: FIRA, ON BASIS OF INFORMATION PROVIDED BY. SAGARPA AND CONAPO 8
Finally, it is very important to bear in mind the six key factors for success in financing the coffee chain in Mexico 1 2 3 4 5 6 ORGANIZATION TOP TO BOTTOM FINANCING TRUST (FULFILMENT OF CONTRACTS) APPROPRIATE POLICIES AND COMPLEMENTARY SUPPORT DIFFERENT SUPPORT PROGRAMMES (FOR (O PROJECTS INTEGRATED INTO VALUE CHAINS) TRAINING (FIRA AND EMPRESAS TRACTOR) Many thanks!!! RODRIGO A. SÁNCHEZ MÚJICA Director Generale www.fira.gob.mx 01 800 999 3472 01 800 999 FIRA 9