Pulling Together to Beat the Middlemen

10/13/14 – This post is written by Armand Tossou, a Fulbright scholar from Benin who is an MBA Candidate in the Global Social and Sustainable Enterprise MBA program at Colorado State University. Armand and his co-founders Aaron and Leana are starting a social venture that will support rural farmers in Nicaragua through increased access to financing and agricultural technologies. See their original post here.

Growing Capital team meeting with a Nicaraguan smallholder farmer

The Growing Capital team meeting with a Nicaraguan smallholder farmer

“United we stand, divided we fall” is an old saying which holds true in most smallholder farmers’ daily experience. From lack of technical skills or affordable financing, to increasingly unpredictable climatic cycles, farmers face many challenges. And yet, what of those who navigate this labyrinth only to find that they cannot market their produce profitably at the end of the harvest season? This is typically where middlemen step in and provide a crucial service by purchasing the produce, but often at extortionate rates. In recent field work with my Growing Capital venture we were exploring an affordable financial solution for low income farmers by providing income producing agricultural assets – such as irrigation systems – on a lease to purchase basis, and I had a chance to learn from the smallholder farmers of Nicaragua and observe their adaptations to this market challenge.

The stereotypical smallholder farmer

In the small community of San Ramón – a municipality in the Matagalpa department – Don Isael lives alone on his farm in a tiny mud house. He ekes out a living on a two manzana (roughly 1.2 acres) plot of land by growing various crops throughout the year. He can only sell three quarters of the harvest through middlemen or at San Ramon’s market square. Lacking credit from the formal financial system, Don Isael resorts to usurers for loans each season in order to pay for necessities such as seeds and fertilizers. These loans of 2,000 – 3,000 cordobas (approximately $80 – $120 USD) bear interest rates as high as 15% a month.  Don Isael’s challenges are representative of a large percentage of farmers in this region of Nicaragua. Even simple tools to ease the burden, such as a bicycle, are out of reach. In Don Iseal’s own words, “I cannot afford the repair cost when it breaks down.”

A bright spot just a mile away

A couple of steps away, Don Cidar owns a six manzana (roughly 3.5 acres) farm. The contrast is shocking; not only does he own cattle, but in the luxury of their higher quality home Don Cidar enjoys TV with his family. Unlike Don Isael, Don Cidar grows high value perishables such as tomatoes and sweet peppers in three micro-tunnels equipped with irrigation. He supplies two high-end supermarkets located in the capital of the department of Matagalpa. His success is no mystery, and Don Cidar owes it to his affiliation to the UCA San Ramón: a farmers’ cooperative which provides multiple benefits to its members, including credit for agricultural production, technical assistance and, above all, marketing. Through affiliation with the cooperative, Don Cidar and other farmers have solved the distribution puzzle and hence get a fairer price for their produce. Don Cidar’s immediate goal is to expand his

business by acquiring more micro-tunnels.

The most uplifting case of all

The Growing Capital team touring a greenhouse in Nicaragua

The Growing Capital team touring a greenhouse in Nicaragua

Of the various cooperatives which I was fortunate to visit during my time in Nicaragua, the success of COPROEXNIC clearly stands above the rest. Incorporated in 1995, it has grown into a 3,000 member organization, and is Nicaragua’s largest exporter of sesame and sole exporter of organic cotton. By selling on the international market under the Fair Trade label, farmers in this network get more for their crops.  The benefits of pulling together into collectively owned organizations such as COPROEXNIC are obvious for smallholder farmers. By selling as larger groups, they not only achieve the huge volume of crops required to enter major commercial contracts, but also avoid getting stuck in the middleman-supported extortionate loan cycle, and increase their bargaining power.

In summary, it is no wonder that the recent Rockefeller Foundation initiative’s report on Reducing Global Food Waste and Spoilage highlights bulking and group marketing in the top 10 potential solutions to help smallholders escape the middleman trap, and thereby better reap the fruits of their efforts. The implementation of this solution however calls for innovative mechanisms to help farmers like Don Isael, who are too impoverished to afford the entrance fees and periodic membership fees required by cooperatives. While that task might look daunting, Growing Capital is committed to give it a shot.

This entry was posted in Global Orientation, Impact Investing and Startup Financing, Stories from the Field, Sustainable Enterprise and tagged , , . Bookmark the permalink.

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