Exportadora de Café California Finance resilience in Coffee. Mexico City. March 2018
Context Café California and Mexico Overview of the country value chain Exportadora de Café California ECC 20% Farmers Coops / middlemen Wet and dry mill Exporters Domestic market Mexico is the 7th largest coffee producer in the world, and the biggest export of organic coffee. 15 Puchase agencies 1 Wet mill 3 Dry mills 9 Collection points 8 Farms 2 Sales centers 15 Nurseries Other companies Mexico Coffee Market Share 2.5 million people in Mexico make a living of coffee. In 2014-2015 the production decreased from 5 million of bags to 2.3 Million. In 2017 the crop recovered to 3.4 Millions of bags(1 bag = 60 kg). The local consumption in 2016 was 2.8 millions of 60 kg. Mexico has: 722,444 hectares of coffee production 527,662 coffee farmers with an average of 1.4 hectares by farmer. ECC was founded in 1941 in Tapachula, Chiapas. Our core business is to bring services to coffee industry and farmers. We work directly with more of 8 thousand coffee producers and 150 customers. We are coffee producers in Chiapas and Puebla. 2
2014 The challenge Production Coffee crops in Mexico were reduced from 5 m. of bags to 2.3 m. of bags in 2014. Old coffee plantations were prone to deseases because of climate changes. Demand Local coffee consumption increased by 3% annualy. Café California has always operated with a high volume coffee set up, at the same time the crop was decreasing in a 50%. We got two possibilities: México has the 3rd. biggest capacity installed of production in roasted, soluble and decaf coffee. Crop 2013/2014 million of bags Local demand 2.6 Exports 2.4 Total Demand 5.0 Production 3.2 Option A Reduce our company size and wait until coffee production rises again. Option B Innovate and influence along value coffee chain creating a sustainable model for small coffee producers. Bags of 60 kgs. Production deficit - 1.8 3
2014 action Por Mas Café Program The model must be self sustainable. The success of the program must not depend on subsidies, philanthropy or donations. FINANCING should be the K-Detonator of the program We need other stakeholders. Oriented to small coffee growers who want to: Improve their livelihoods by working their land Acceptance of a sustainable agricultural business model, breaking down the traditional agricultural welfare system. Understand that nothing is for free, the program involve a lot of work Agronomic Economic Social & Environmental Main Challenges Coffee production in Mexico has been hit hard for the last four years by coffee rust (roya del café) The regions with the highest percentage of area affected by coffee rust are Veracruz with about 70% of total area affected, Chiapas and Puebla with about 60% of total area affected Farmers face a lack of agricultural know-how (e.g. use of fertilizer, disease control, etc.) There is no access to technical assistance, input or finance The economic viability of coffee farming is low, due to low profitability and productivity The average age of coffee trees is around 50 years Due to coffee rust and old trees, production has decreased from 4.5 million bags in 2010/11 to 2.2 million bags in 2015/16 Coffee farms are facing the consequences of climate change with shifting weather patterns (droughts/floods) There is a constant rural exodus of younger generations as the profitability of coffee farms remains unattractive Culturally, people are reluctant to rejuvenate plantations as they are seen as family legacy, even if the trees are no longer productive 4
Por Mas Café Goal Goal Implement a supply chain system in which at least the 60% of our coffee needs come just from a self sustainable model focused mainly in smallholders. Objectives Turn farmers into agribusiness entrepreneurs Renew coffee farms in Mexico Improve the smallholders organization, skills and capacities Develop the capacities, labor and productive enterprises of women and young people. Outcomes Increased productivity due to renewal farms Improved business case for farmers Coffee-producing communities overcome extreme poverty Activities Integrated model for social and economic development that includes access to inputs, planting material, technical assistance, finance, and support for organizations 5
FINANCING Extension services ECC provides technical assistance through extension officers that are specialized in every region/context. ECC constantly trains its personnel on state-of-the-art agronomical know-how and works with international coffee consultants to continuously provide producers with the most updated knowledge. Financing and insurance In collaboration with FIRA and Banco Ve por Más, ECC offers a prefinancing model and credit scheme for rejuvenation, inputs and labor. ECC pre-finances farmers to facilitate a grace period of 2 years. The service bundles also include crop insurance. Verification & certification ECC offers support and technical assistance for 4C verification, and for certification such as Organic, Fairtrade, Rainforest, UTZ, and C.A.F.E. PRACTICES. Input provision ECC provides access to fertilizer and inputs to producers. ECC is not an ordinary input supplier but in its ability to buy inputs in bulk at lower costs, ECC offers producers access to high-quality fertilizer, crop protection and other agro-inputs at competitive prices. Renewal ECC produces improved planting material using selected varieties, such as Sarchimor, Parainema, Obatá, H1, Robusta. These plants are rust- and nematodes-resistant plants, more productive and have more adaptability to weather conditions. Organizational capacity building support ECC requires producers to be organized in groups. ECC supports producers organize and finances any fees related to the legal formation, when needed. This service is NOT included in the service bundle offered to farmers 6
Co-funding of program First loss guarantee Donors Financing for farmers Coffee beans ECC Domestic sale and export Salary, materials and other costs Guarantee and payback ECC processing mills (dry and wet) Input suppliers Input Pre-finance Farm inputs Dry beans (parchment/ pergamino) ECC purchasing agencies and warehouses ECC nurseries ECC extension officers Payment for service bundle in parchment coffee (pergamino) Payment for coffee after discounting service bundle repayment over the years Service bundle inputs: seedlings, fertilizer, crop protection, other inputs and insurance Service bundle services: Technical assistance and certification Organizational capacity building support Payment for org. support in coffee Farmers Legend Flow of goods and services Cash flow
Results achieved Year Farmers Renewal hectares Long term loans Coffee plants (Ve por Mas Bank) 000 USD In million Year Accumulated Year Accumulated Year Accumulated Technical assistants 2015 2,474 2,474 1,034 1,034 3.0 $2,116 $2,116 11 2016 1,827 4,301 1,368 2,402 4.0 $2,590 $4,706 24 2017 1,564 5,865 1,650 4,052 5.0 $3,651 $8,357 41 2018 2,000 7,865 2,240 6,292 8.0 $6,272 $14,629 68 10,000 8,000 6,000 4,000 2,000 - Farmers Hectares 8000 6000 4000 2000 2,474 4,301 5,865 7,865 1,034 2,402 4,052 6,292 0 2015 1 2 3 4 2016 2017 2018 2015 1 2016 2 2017 3 2018 4 + Altos Project Before Por más café Program: 3 bags per hectare. After 4 years of work with Por más café Program : 22 bags per hectare. Increasing more than 600%. 8
Exportadora de Café California Osvaldo Ortega Av. Framboyanes Lote 21 Manzana 6 Fracc. A y B Cd. Industrial Bruno Pagliai Veracruz, Ver., Telefóno: 01 229 989 42 00 osvaldo.ortega@nkg.coffee www.eccmexico.com 9