Don’t get roasted – managing coffee risk

Don’t get roasted – managing coffee risk

May 4, 2017 - by Frank Rubio - 0 comments

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A group of Oikocredit’s Agriculture staff have just returned from the annual Global Specialty Coffee Expo hosted by the Specialty Coffee Association (SCA) in Seattle, Washington. This year over 11,000 industry players participated in this important event. 

Oikocredit had a booth on the expo floor where we were kept very busy meeting with current and potential new partners (organizations that we work with and/or invest in). There was also a lecture series where our very own Hugo Villela, AgriUnit regional agribusiness specialist for Latin America, was invited to speak on the topic of Price Risk Management.

So what is Price Risk Management?

Imagine, if you can, that your monthly income looked like this:

 Source: http://www.nasdaq.com/markets/coffee.aspx

It would be a fairly scary prospect if every month you were uncertain about how much you would earn. Yet, for millions of smallholder coffee farmers worldwide, the above graph is the typical pattern of their monthly revenue streams. Coffee farmers are subject to the volatile patterns of price fluctuations caused by the basic laws of supply and demand. Not only do these price fluctuations affect the smallholder farmer, but they also greatly increase the risk to Oikocredit in lending in the agricultural sector. Price risk is in fact the most important and significant risk that smallholder coffee farmers face.  

Enter the concept of Price Risk Management (PRM).

PRM provides an opportunity for our coffee cooperatives to offer their members more stable revenue sources through the strengthening of their ability to better manage their inventories and more accurately forecast their financial situations over time. Oikocredit was just awarded approximately $1 million in technical assistance funds from the Inter-American Development Bank to implement a PRM programme with 16 coffee cooperatives in Central and South America. The programme will offer training that engages cooperative stakeholders at all levels, peer learning and coop to coop exchanges, and financing to cooperatives to undertake their PRM strategies. The expectation is that strengthened cooperatives will subsequently result in stable and increased incomes for small producer members.  

Oikocredit is leading the initiative with our PRM staff based in Costa Rica, again led by Hugo. The Global Specialty Coffee Expo was an excellent opportunity for us to further market this new initiative to key players in the coffee industry. Besides the previously mentioned panel discussion, we also co-sponsored a launch event where over 15 roasters and traders participated in a round robin question-and-answer session on the new project. This event was organized by Fair Trade USA - one of our key partners in the new PRM project. The other partners include: Catholic Relief Services, a US based humanitarian organization, and Keurig Green Mountain, one of the largest traders in specialty coffee.

We are extremely excited about this new initiative and expect that the investment we are making now will benefit all our other coffee partners in Latin America and Africa in the future. We also expect that the tools currently being developed will be useful for other commodities we support. We will continue to keep all of our stakeholders abreast of activities in this challenging project. For now, feel free to comment with your own questions or feedback over addressing price volatility.

Read more about the PRM initiative

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