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Price risk management

Photo: Carl de Keyzer / Magnum Photos for the Virunga Foundation Photo: Carl de Keyzer / Magnum Photos for the Virunga Foundation

The problem

Producer organisations such as cooperatives play a key role in supporting coffee farmers to access international markets, improve their quality and provide for their families.  However, coffee is a risky business for both farmers and cooperatives with farm gate prices dictated by international markets. 

Coffee farmers and producer organisations in eastern Africa often have to make uninformed decisions on pricing strategies as they are far away from these markets, increasing the risk to their businesses and livelihoods.

Coffee can provide a significant income for smallholder farmers and support thriving producer organisations when prices are high, but can leave farmers unable to earn a decent income and cooperatives on the verge of bankruptcy when prices are low. If price shocks are severe, farmers cannot cover the cost of production and may default on loans, making it difficult for both farmers, producer organsations and lenders to return to a productive state.

What are we doing?

The project will deliver a series of workshops on price risk management to at least 90 representatives from 30 coffee cooperatives across Uganda, Rwanda and DR Congo between October 2020 and May 2021.

The workshops will be tailored to help cooperatives better understand pricing in the global coffee industry. It will provide tools and strategies to mitigate their exposure to volatile price fluctuations  and manage their businesses to the benefit of farmers.

Workshops will include:

  • Pricing construction tools – understanding the components of coffee pricing
  • Contract pricing strategies and clauses – maximising pricing and challenging contract clauses that may increase risk to coffee producers
  • Harvest forecasting and monitoring tools – to allow cooperatives to plan and track their inventory in real time
  • Hedging tools – to manage future contracts and price risk

Farm Africa has partnered with Root Capital to support cooperatives’ access to finance. By participating in the price risk management workshops, cooperatives will improve their price risk management capacities which will make it easier for them to pass Root Capital’s due diligence process and access working capital to support their further expansion and growth.

Root Capital expects to extend a total of more than US $200,000 in new loans to coffee cooperatives following the training.

Who are we working with?

Farm Africa is working with Root Capital in partnership with Feed the Future Partnering for Innovation, a U.S. Agency for International Development (USAID)-funded program, implemented by Fintrac Inc.,that builds partnerships with agribusinesses and NGOs to help sell new products and services to smallholder farmers.

Funded by Feed the Future Partnering for Innovation. The contents of this article are the sole responsibility of Farm Africa and do not necessarily reflect the views of the United States government, USAID, Feed the Future Partnering for Innovation, or Fintrac Inc.