Improving coffee farmer welfare with innovative credit solutions in developing countries
- Most poor people in developing countries work in agriculture. Many sell to cooperatives and agro-processing enterprises. Improving these firms’ access to credit has the potential to unlock demand and raise farmers’ incomes.
- Providing sustainable access to working capital loans in agricultural chains has proven difficult due to poor contract enforcement, volatility in world markets, and weak management.
- Together with Root Capital, this project studies the nature of contractual defaults in the international coffee market; effects on credit provision to cooperatives and agro-processing enterprises; and effects on farmer welfare.
- Overall, defaults by agricultural enterprises on working loans are relatively infrequent, however, roughly half of the observed defaults are strategic.
- Approximately 35% of coffee enterprises are credit constrained and a further 39% are insurance constrained.
- Therefore, to increase farmer welfare, contract enforcement and relationships along the supply chain need to be strengthened.
- There should be efforts to improve credit to agricultural enterprises via innovative credit designs that improve the targeting of funds.