Regula'ng the Market: the Costa Rican Case Pepita Miquel- Florensa Toulouse School of Economics IGC NAEB Coffee Conference February 9 th, 2015
Costa Rica Coffee Sector Costa Rica: a small LaEn American country with a well run state and Coffee Board (ICAFE) Coffee mostly grown by smallholders A success story: EssenEally all coffee is exported as washed Approx. 80% as specialty coffee Many aspects contributed to the country success: RegulaEon of varieees, quality, water- management Drive towards cereficaeon and environmental sustainability Regula'on of marke'ng
Costa Rica Coffee Sector: Regula'on ICAFE represents interest of farmers, processors and exporters. Ley N 2762: Ley sobre el Régimen de Relaciones entre Productores, Beneficiadores y Exportadores de Café Ar;culo 1 - Esta ley Cene por finalidad determinar un régimen equitacvo de relaciones entre productores, beneficiadores y exportadores de café, que garancce una parccipación racional y cierta a cada sector en el negocio cafetalero, y por objeto, todas las transacciones con café producido en el territorio nacional. This law has as its objeceve to achieve an equitable system of relaeonships between producers, processors and exporters of coffee that guarantees a raeonal and secure parecipaeon of each stage in the coffee business and, consequently, for all transac'ons of coffee produced in the naeonal territory
Costa Rica: Proceso De Liquidacion Final
Costa Rica Coffee Sector: Regula'on Step 1: Farmers sell cherries to the staeon à StaEons report bi- weekly to ICAFE about purchases of all types of coffee. FARMERS (Small holders/ estates) COOPERATIVE PRIVATE
Costa Rica Coffee Sector: Regula'on Step 2: StaEons make advance payments at delivery (approx. 30%) a. Farmers receive a receipt (Law ensure its value as a contract) b. StaEons report to ICAFE advances FARMERS (Small holders/ estates) COOPERATIVE PRIVATE
Costa Rica Coffee Sector: Regula'on Step 3: StaEons write contracts with exporters a. All contracts must be registered and approved by ICAFE b. Contracts specify delivery date, quanety, price, quality c. ICAFE can refuse a contract if price (relaeve to NYC) is too low. FARMERS (Small holders/ estates) COOPERATIVE PRIVATE EXPORTER bulking & sales EXPORTER bulking & sales
Costa Rica Coffee Sector: Regula'on Step 4: StaEons must pay every trimester depending on the advances FARMERS (Small holders/ estates) COOPERATIVE PRIVATE EXPORTER bulking & sales EXPORTER bulking & sales
Costa Rica Coffee Sector: Regula'on Step 5: Final Liquida'on At the end of harvest season staeons must pay farmers final liquidaeon + contribueon to stabilizaeon fund FARMERS (Small holders/ estates) FL = Sales Advances Cost Profit Fund COOPERATIVE PRIVATE EXPORTER bulking & sales EXPORTER bulking & sales
Costa Rica Coffee Sector: Benefits Fair and Equitable System: Farmer is guaranteed a certain share of FOB price RegulaEon prevents transfer pricing within integrated chains Farmer exposed to less risk Payment depends on price condieons prevailing over enere harvest season Transparent Final LiquidaEon payments are published in NaEonal Newspaper Bejer cash flow management and lower working capital needs Farmers do not get all their money at harvest Eme StaEons have lower working capital requirements
Costa Rica Coffee Sector: Downsides? Enforcing contracts between farmers and staeons system strengthen relaeonships and reduces staeons working capital needs At the same Eme, the system preserves staeons compeeeon for cherries System does not directly address side- selling problem: farmer receives inputs from staeon A but sells to staeon B. But farmers will think twice reneging on financially solid staeons Implementa'on: Small holders in Costa Rica are larger (and wealthier) than in Rwanda Systems requires technical capacity in the board Though technology helps System requires poliecal support Other countries have failed due to vested interests
Costa Rica Coffee Sector: Prac'cal Aspects Receipts? On paper (with legal character). A document that guarantees an inical payment and a right to a final price declared by ICAFE. 3 copies (available to ICAFE) Lean dispute resolucon and sanccons for cheacng stacons Reports from StaEons? every 15 days (within 5 days) Common template, online a server Legal declaracon only random checks on individual receipts Payments? Everything happens with banks Advantage of semng up a system now: Cheaper IT services Coordinate with CENSUS to issue farmers cards