Follow the links below to find out how coffee farmers in Peru and Costa Rica, and cocoa farmers in Ghana have improved their livelihoods by gaining more power in markets.
These reports are based on the experiences of small-scale producers, as they strove to access new markets and demonstrate how a markets-based development approach can improve the lives of poor people.
Coffee: Stirring things up
How Peruvian farmers gained power in the coffee market
Cocoa: Best of the best
The story of the Kuapa Kokoo farmers’ co-operative in Ghana
- Meet Comfort, a cocoa farmer in Ghana
- Meet Guillermo, a coffee farmer in Costa Rica
Coffee: Stirring things up
Introducing the farmers of Piura
In the Piura region of Peru many small-scale farmers and their families depend on the production of coffee to make a living.
Because coffee grows well in this hilly area, it is the principal cash crop for most farmers. In the past, income from their coffee has enabled them to feed their families and meet their basic needs.
But during the early 1990s, the farmers found that they could no longer make a secure living from coffee. They did not have enough money to invest in their land, and their small plots and ageing bushes were becoming less productive; government support for coffee farming was no longer available, and the price that the farmers received for their crop was often very low. Many farmers found themselves in debt and no longer able to feed their families.
This account shows how, by organising collectively, the farmers of Piura were able to gain a better price for their coffee, and power to influence the wider coffee industry.
The Piura farmers realised that they would need to work together if they were to escape from the cycle of debt and poverty.
Working on a larger scale would also allow them to obtain specialist training and advice, and to invest in their land and equipment. So across the region farmers set up informal groups in their villages to enable them to work together.
"Coffee is how we earn our living, it’s our only source of income. Before we started to work with Pidecafé, things weren’t so good. The plants were in poor condition, they were old, and we did not know about pruning them. Now, with advice from Pidecafé, we prune and thin our plants and renew old ones. So now we are able to produce more."
Emiliana Cruz Julca, coffee farmer
At the same time, a new NGO, Pidecafé, was created with funding from the German development agency, GTZ. Pidecafé offered expert technical advice to the coffee farmers to help them to improve their production methods. Pidecafé also helped the farmers to register their informal groups as legally constituted associations.
The importance of credit
With the improved quality and increased volume, the farmers were able to start selling their coffee through a neighbouring coffee co-operative.
The co-operative paid the farmers in advance for their coffee, so that they no longer needed to take out loans to cover their production costs until they received payment at harvest-time. This reduced their dependence on external financiers.
The farmers' associations recognised the benefits of credit to small-scale farmers, and established their own credit fund in 1994. A rural development organisation provided the seed capital for the fund, and helped to plan the management of the organisation.
In the first year the credit union channelled $24,000 to 140 farmers. Over the following years, it expanded, and now administers a large revolving fund which provides working capital to fourteen hundred small-scale coffee farmers.
At first the credit union's loan system was abused. Many farmers didn't repay their loans, and some associations even argued against repayment altogether. However, by making local associations responsible for the credit disbursed to their members, and by suspending defaulting associations from the system, the problem was solved within two years.
Moving into marketing
The real goal of the farmers’ associations’ was to move into coffee trading themselves.
In 1995, the associations joined together to establish a marketing co-operative, Cepicafé (Central Piurana de Cafetaleros). The farmers’ associations retained their own identities, but competed with each other to sell their coffee to Cepicafé. This internal competition encouraged high-quality, efficient coffee production.
In 1997, Cepicafé began to export its coffee. Initially coffee was sold in small quantities to the Fair Trade organisations via Twin Trading. But as its reputation for high standards and good quality grew, its level of exports began to rise. By 2000 Cepicafé was selling a significant proportion of its coffee on the open market to commercial buyers in Europe. Cepicafé used its proven ability and advance orders with Fair Trade customers to convince private banks to lend it the money needed to expand its business.
In the first year, the farmers all received the same price per kilo for their coffee, whatever the quality of their beans. Realising that this was not providing an incentive for farmers to improve their coffee production, Cepicafé began to pay the farmers according to the quality of their beans. As a result, the proportion of export-quality beans rose in one year from 83 per cent to 94 per cent.
Cepicafe retains a small percentage of the profits gained through its coffee sales to invest in its business. In 2001 this arrangement raised US$48,000, which allowed Cepicafe to pay for the new premises and warehousing facilities in Piura, which in turn improved the co-operative’s efficiency.
The strength of collective action
Farmers belonging to Cepicafé associations benefit from the production advice and marketing support that Cepicafé offers to its members.
More importantly, by having greater control over when and where they sell their coffee, Cepicafé farmers have more bargaining power when negotiating prices for their coffee.
"I deliver my coffee to Cepicafé and they sell it for me. We sell to Cepicafé because it gives us a better price, but also because it is well organised and we have access to credit, support, and advice. The coffee trader does not come to me and say, 'you should plant your coffee in this way,' or 'you can improve your small farm in that way'. And Cepicafé pays more than the coffee trader. In 2000 Cepicafé paid 257 soles, while the trader paid only 180."
José Adán Chuquipoma Reyes, coffee farmer
Empowered by their collective strength, the farmers are beginning to influence local government and institutions to improve the trading environment for small-scale coffee farmers.
They have achieved improvements in roads and infrastructure in the Piura region. Local councils, impressed by the impact of improved coffee incomes on the economy, are now encouraging more farmers in the region to join village associations.
"In nine years, coffee producers went from ‘sub-citizenship’ to exercising daily their political rights in political parties and in local government."
Marlene Fernandez, Executive Director of Pideca
Cepicafé is one of a dozen co-operative marketing organisations run by coffee growers in Peru.
In 1993 these co-ops decided to capitalise on their growing political skills, and knowledge of how to organise effectively, setting up the Junta Nacional del Café to represent their interests.
The JNC provides training courses for members and is a focus for networking and the exchange of skills and knowledge. Its main objective, however, is to give a voice to its members where decisions are made which affect their interests.
The JNC is now lobbying the Peruvian government for support to get the coffee sector through the present crisis caused by the rapid drop in global coffee prices, and to strengthen it for the future. It is also leading in the creation of a regional policy on coffee within the Andean community. The JNC now represents one fifth of Peru’s 123,000 coffee producers, but hopes to extend its activities to include all small-scale coffee producers. The story is a rare and inspiring example of small-scale producers organising effectively to claim a say in the decisions which affect their livelihoods.
Peruvian coffee exporters used to suffer a penalty of US$12 per tonne penalty on the US coffee-futures market. This was due to brokers’ evaluation of the ‘risk’ presented by the political and economic instability in the country, and Peru’s poor crop quality. The Junta Nacional del Café and the Coffee Chamber of Commerce successfully lobbied the New York Coffee Market committee to bring the penalty down to US$4 / tonne in 2001. This was worth around US$166,000 per annum on their commercial exports – to the Junta’s small-scale coffee growers.
For more information on the JNC visit: www.juntadelcafe.org
- Small-scale producers need to organise if they are to achieve the production capacities (in respect of volume and quality) that are needed to export effectively.
- By giving local associations responsibility for the loans awarded to individual members, a high level of ownership can be encouraged
- If social businesses are to be competitive, they should encourage a degree of internal competition so that enterprise, good quality, and high production values are rewarded
- Retaining a small percentage of sales profits allows capital investment and expansion of small businesses.
- By organising locally and setting up national organisations to advocate on their behalf, small-scale farmers can gain influence over the policies which affect their livelihoods.
Coffee: Stirring things up was written by Peter Williams and Annabel Southgate, Oxfam Great Britain.
Introducing Kuapa Kokoo
In the Ashanti region of Ghana, a farmers’ co-operative has improved the lives of thousands of small-scale cocoa farmers.
Since its establishment in 1993, Kuapa Kokoo has grown from a co-operative of 22 farmers’ societies into a thriving association of 900 groups, involving more than 40,000 farmers.
The co-operative is owned and managed by the farmers themselves. This means it is able to offer many benefits to its members, who would normally struggle to make a living from what they produce.
The co-operative has taken advantage of several major market opportunities to help to build sustainable livelihoods for its members.
They are rightly proud of the cocoa they produce: Kuapa Kokoo means ‘good cocoa farmers’, and their slogan is Pa Pa Paa – ‘best of the best’ (in Twi, a local language).
Vision and opportunity
In the late 1980s, all cocoa farmers in Ghana were forced to sell their product directly to the government-owned Produce Buying Company (PBC).
Most farmers were cheated over the weight of their product, and the price they received for it was too low to meet their basic needs.
In the early 1990s the World Bank imposed economic reforms on Ghana, forcing it to privatise the trading of cocoa within the country. Now a limited number of private companies could apply for a domestic trading licence to buy cocoa directly from the farmers and then sell it to the government for export abroad.
Nana Frimpong, the farmers’ delegate at PBC, had a vision of setting up a farmer-owned and managed cocoa-trading organisation. Initially 22 farmers’ societies joined the fledgling co-operative, and the organisation grew rapidly as Kuapa built the trust and confidence of the farmers by using accurate weighing scales and paying them for their product on collection.
Getting a licence
Initially Kuapa experienced difficulties in securing the domestic trading licence they needed in order to sell their cocoa to the government. As farmers, they did not meet certain necessary requirements, such as owning assets, being a limited company, and having an established board.
Nana Frimpong and several others used their own personal property to invest in the company and secured a loan from a UK-based Fair Trade organisation, Twin Trading. This gave them the funding they needed to register as a company, meet the other criteria, and secure the licence to trade.
Kuapa Kokoo was now working with a growing network of farmers. During its first main harvest season in 1993-94, however, Kuapa experienced a cash-flow crisis.
This was because Kuapa collectors were travelling over a wide area on bad roads, picking up cocoa, and paying the farmers on collection, before receiving payment for it from the government.
New transport systems were introduced, reducing the time between collecting the cocoa and receiving payment from PBC. Later, when Kuapa had built the confidence of the farmers, it was able to introduce a ‘deferred payment system’ and pay the farmers only when it had itself been paid for the cocoa. These changes meant that Kuapa no longer had to take out expensive loans to cover cash-flow deficiencies, and could pass on this saving to the farmers.
Tips on managing cash-flow
- It is important to accurately forecast the likely incomings and outgoings of any new business venture.
- Ensure that payments are spaced appropriately and that the business has sufficient capital reserves to cover these payments
- Ensure that logistical operations (such as transport of goods, and payment for goods) fit with cash-flow needs.
Fair Trade Premium
Demand for fairly traded cocoa in Europe offered the Kuapa Kokoo farmers an important new market opportunity.
Max Havelaar, the Dutch Fair Trade organisation, had persuaded Dutch chocolate manufacturers to use Fair Trade cocoa in their product. The manufacturers insisted, however, that the cocoa must be from Ghana, because they believed Ghanaian cocoa to offer the best quality available.
Max Havelaar negotiated with PBC to buy ‘tagged’ cocoa – cocoa which could be clearly identified as having been produced under Fair Trade conditions by Kuapa (while most Ghanaian cocoa cannot be traced to its particular producer).
By selling some of its cocoa to the Fair Trade market, which pays a premium on top of the basic price, Kuapa has been able to pay more to the farmers, helping them to develop a better income from their product. The rest of the premium is kept in a community development fund, which is spent on projects such as sinking new wells and establishing income-generating schemes.
- Fair Trade seeks to build the ability of marginalised producers to access international export markets, while offering them a protected Fair Trade market. For producers involved in Fair Trade partnerships, Fair Trade is about better prices, decent working conditions, local environmental sustainability, and fair terms of trade.
FLO (Fairtrade Labelling Organisations International) is the standards body for establishing and monitoring Fair Trade criteria. Producers who meet the criteria can be registered with FLO. Brands which use Fair Trade products from FLO-registered producers are licensed to use the Fairtrade Mark by national organisations, for example Max Havelaar (in the Netherlands) and the Fair Trade Association of Australia and New Zealand. There are 17 national Fair Trade organisations around the world. For more information about FLO,visit www.fairtrade.net.
Setting up credit union
Many of the Kuapa farmers expressed a need for help with money management and access to affordable credit: small-scale farmers find it hard to obtain credit through the normal banking system and often resort to borrowing from money lenders at extortionate rates of interest.
In response to this need, Twin Trading co-ordinated a feasibility study for a village-based credit facility which led to the launch of the Kuapa Kokoo Credit Union in 2000.
Kuapa’s new credit union now gives many small-scale farmers access to loans and is encouraging savings schemes for the first time. Twenty per cent of members have already joined the scheme. Loans are available to whole villages for developmental projects, to groups of farmers to improve agricultural methods, or to individual farmers. The loans are made at reasonable rates of interest and over longer periods than those offered by official banks.
Tips on setting up a credit union:
- A legally incorporated credit union ensures greater accountability.
- Credit unions work best when people are dealing with money from their own savings schemes, rather than money provided by donors.
- Community education and promotion of the credit union reduces the risk of members defaulting on loans
- Ensure that credit services meet women’s needs, as well as men’s: women usually have less access to credit than men, but are better at repaying loans.
Kuapa Kokoo today
Today Kuapa Kokoo is a thriving farmers’ co-operative involving more than 40,000 farmers, operating in five cocoa-growing districts of the Ashanti region.
Approximately three per cent of their cocoa is sold to the Fair Trade market, with the premium that this offers being invested in the social development of the farming communities.
Perhaps the most exciting development is that in 1998 Kuapa joined with UK Fair Traders, Twin Trading and The Body Shop, to launch their own company to market Fair Trade chocolate bars.
Divine chocolate is produced by The Day Chocolate Company and sold in specialist shops and supermarkets in the UK. The Kuapa farmers own one-third of the company, get a share of the profits, and have a say in how the company is run: an excellent example of producers being able to influence the sale of their product, and benefit from the profits.
Kuapa Kokoo - The History
|1992||Ghanaian government starts to liberalise the trading of domestic cocoa.|
Kuapa Kokoo established by Nana Frimpong.
October 1993 -
First cocoa harvest.
Cash-flow crisis as expenditure exceeds income.
New transport systems introduced, so Kuapa can turn over cash more quickly
|May - August 1994||
A Dutch cocoa importer imports Kuapa’s cocoa under Fair Trade conditions.
October 1994 -
Kuapa makes its first operating profit.
'Deferred payment’ scheme introduced.
Start-up loan repaid.
|1998||Kuapa decides to produce own-branded chocolate bar for the Western market. Day Chocolate Company established.|
|2001||Credit union set up.|
Learning from Kuapa experience
Vision: A strong vision gives drive and inspiration to a business. But individuals with vision are not enough. Their vision needs to be supported with careful planning.
- External change offers opportunities: Changes in the trading environment often present new opportunities for small-scale farmers to participate in the market-place.
- Cash-flow is a critical element of business planning. Income and expenditure should be carefully monitored and controlled to avoid a cash-flow crisis.
- Fair Trade offers a secure price and premium, and long-term buyer relationships for farmers who meet Fair Trade social and environmental criteria.
- Credit unions enable local communities with a common interest, for example women and small-scale farmers, to obtain credit at affordable rates of interest.
'Cocoa: best of the best' was written by Diana Gibson and Annabel Southgate, Oxfam Great Britain.