Opinion: Five Strategies To Help Close the Living Income Gap for Farmers

Photo courtesy of Olam Food Ingredients.

Long queues for takeaway coffee during lockdowns are one sure sign that demand still thrives. But for the majority of smallholder farmers who produce the word’s coffee beans, COVID-19 has exacerbated underlying vulnerabilities, potentially putting supply chains at risk.

In the recent Olam annual farmer barometer, more than half (55%) of the 1,354 surveyed coffee farmers from across 12 sourcing origins said that they had seen their income fall during the last six months as compared to before the pandemic . 

This is a worrying scenario for farmers who are already living at subsistence level and battling the long-lasting impacts of market and climate shocks. They are left with little opportunity to invest in their farms for the future and are increasingly likely to abandon coffee as their main source of income. This has repercussions across the whole supply chain — from shrinking volumes to less sourcing diversity. 

Ironically, if supply dwindles, prices start to rise again, but given that it takes three to four years for newly planted coffee trees to bear fruit, starting over when the market picks up isn’t an option, especially given such a volatile market.

With boots on the ground in 17 coffee sourcing origins, Olam Food Ingredients‘ (OFI) coffee business has been working to plug income gaps for farmers, while facilitating holistic sustainability support, for well over a decade. Our new sustainability insights platform, AtSource Plus allows us and our customers to track the progress of our farmers and helps us to identify where support is needed.

However, to find out if we are focusing on the right interventions to truly move the needle on farmer profitability, we performed a detailed literature review and meta-analysis on the most effective strategies that close the living income gap. The review revealed five factors that are the most impactful when it comes to improving the sustainability of coffee farmer incomes. While there are no one-size-fits-all solutions to the profitability challenges facing coffee farmers, we have also outlined some potential courses of action based on recent real-world results:

1. Viable farm size

According to IDH’s Task Force for Coffee Living Income (TCLI) , the average small-scale producer in Colombia would need to cultivate 12.4 hectares of coffee to achieve a living income, yet nearly 70% of coffee is produced by farmers with less than 5 hectares. No amount of technical assistance or price support from buyers alone is enough to close this gap. 

Models such as “block farming” allow farmers to consolidate their land to develop more intensive production systems using economies of scale. That said, there are few examples of it working in practice, due to the significant facilitation required from local government, as well as the requirement for behavioral and cultural shifts among farming communities. 

One strategy that might be used to address the complex issue of farm size viability is multi-stakeholder partnerships involving both coffee communities and government. Through a partnership between OFI, the national forest agency of Peru (SERFOR) and the nonprofit Solidaridad in Peru, farmers were able to access official government land titles in return for implementing agroforestry practices. 

2. Income and crop diversification

When prices suddenly drop or unprecedented rainfall triggers a devastating leaf rust outbreak, farmers need to have an alternative income stream to offset their losses from coffee. 

Equipping farmers with the necessary training, inputs and market connections to diversify their coffee farms with other cash-crops such as banana, avocado, or pepper allows them to increase productivity from the same area of land, and therefore supplement their income during periods of low coffee prices. 

Combining different crops on the same plot generates the additional benefit of improved climate resilience. It tends to promote a healthier micro-climate on farms while also adding a potential source of revenue if farmers are rewarded for increased biodiversity or carbon sequestration. 

Another route is through small business ventures like chicken farming, fruit production or beekeeping. OFI has partnered with the nonprofit Heifer International to introduce these activities to coffee farmers in Mexico, Nicaragua and Honduras, respectively, and our report shows an average calculated ROI of 185%

3. Record keeping

Farm records should be up to date to show the exact production area on the farm, the area cultivated with coffee, and the unproductive area that is under renovation or being preserved, and even the number of coffee plants in the ground. 

This information allows farmers to estimate costs of production, which in turn informs what is the minimum price that they would need to secure in order to maintain profitability in a given year. Having formalized bookkeeping processes can also help smallholder farmers seeking loans. 

Certified producers are required to track both revenue and expense metrics for their farms, so the pursuit of certification alone might help improve farm management practices, and potentially profitability. In origins where literacy levels are low, basic numeracy training is often a prerequisite to providing any professional skills development like bookkeeping.

We are promoting bookkeeping through our Coffee LENS strategy, which has a target of training 100,000 members of the farming community by 2025.

4. Tree age and health

Over time, trees produce less and lower-quality coffee. Regular pruning is essential to prolong their productive lifespan.

In the Democratic Republic of Congo, where years of civil conflict have eroded the economic resilience of farming families and brought financial deprivation to many, a partnership with Élan RDC (DIFID) has trained local teams’ to prune neglected coffee trees, and supplied a million coffee seedlings to replace old or diseased tree stock. 

In India’s Chikmagalur district, we’ve seen growers shift from arabica varieties susceptible to white stem borer infestations to more resilient but less lucrative robusta. Our report saw a 5% increase in income for these farmers when switching to good quality, disease-resistant arabica seedlings over standard robusta.

5. Access to finance

The lack of banking infrastructure in rural communities and risk aversion by financial institutions make farmers’ access to credit difficult and sometimes not possible. This can leave them them without necessary capital to invest in their farms, and when they have the required funding, interest rates are typically so high that any gain in productivity or quality is often swallowed up when paying off the loans.

Facilitating access to interest-free or low-interest loans for crop purchases and procurement of farming inputs and equipment allows farmers to make the necessary investments on their farm and reap the benefits, creating a circle of yield growth and reinvestment. 

A mechanism known as Village Savings and Loans Associations (VSLAs) has the ability to promote financial inclusion by building up credit histories until farmers are able to open their own bank accounts. They have the added benefit of bringing community members together, encouraging knowledge-sharing on regarding farm and financial management. 

Next steps

An assessment of 10 of OFI’s Service Delivery Models (SDMs) in Peru, Colombia, DRC, Uganda, Vietnam, and Mexico revealed that, on average, just over two of the five critical factors above were being addressed per individual farm. 

Given a better understanding of the most effective living-income strategies, our focus now is on redesigning SDMs and future partnerships to be more efficient in closing the living income gap. In Honduras, Uganda, and Colombia, this will involve tailored approaches for some 3,500 farmers based on needs assessments. 

Now that the industry has reached a consensus on what living income benchmarks should look like — through the work of the ICO Coffee Public-Private Task Force — we all need to keep the conversation going and work towards cost-effective and replicable models that can help close these gaps.

We are welcoming partners from across the industry to join us in developing models to ensure that farmers all over the world can receive, at a minimum, a fair living income. 

[Editor’s note: Daily Coffee News does not publish paid content or sponsored content of any kind. Any views expressed in this piece are those of the author and are not necessarily shared by Daily Coffee News.]