Two years on, what can we learn about providing credit to smallholders?

29 Oct 2018

Learning with market leader Barry Callebaut: providing inputs on credit to smallholder cocoa farmers in Côte d’Ivoire.

In 2016, Barry Callebaut, leading supplier of high-quality chocolate and cocoa products, launched an ambitious program with support from the IFC and IDH. The program’s ambition is to enable 103,000 smallholder cocoa farmers to rehabilitate, renovate, and improve the productivity of their farms. To reach this goal, Barry Callebaut supports cooperatives and farmers to access credit for the purchase of the ‘productivity package’, which includes inputs and training on elements such as pruning, crop protection, income diversification and responsible fertilizer techniques. The provision of credit is possible through farmer segmentation and the support of specialized field agents working with farmers to increase uptake. Through this hands-on, supporting role Barry Callebaut has ensured its farmers and cooperatives are gaining maximum benefit from the services provided.

Farmers were not able to pay for rehabilitation/regeneration of their farms

This innovative farmer engagement model came into being after IDH conducted a service delivery model (SDM) analysis in 2015. The analysis looked into the profit and loss of the services being provided, to both the company and farmer. The major learning from the analysis, was that farmers were not able to pay for rehabilitation/regeneration of their farms. This was identified as a cash-flow challenge, as farmers often received payments once in the year. This insight encouraged Barry Callebaut to look into a credit-savings scheme that could enable farmers to bridge their financial gap save and invest more in their farms.

Inputs-on- credit result in overall livelihood gains for farmers and their families

Barry Callebaut’s resulting input-on-credit program contributed to an overall livelihood gain for farmers and their families as they gain positive operational and financial track record, making it possible for local financial institutions to provide loans directly to farmers. However, this is not only a story of success, there have been several challenges to the long-term sustainability of the services provided. These include the costs of capacity development and farmer selection, the stability of the enabling environment, and the finance needed to sustain the overall model. IDH and partners can learn a great deal from Barry Callebaut’s brave approach and the challenges it has confronted while sharing risks with smallholders.

Grant funding helped cover startup costs of technology systems and capacity development

The first challenge is related to the scale of the program.  Providing credit to 103,000 farmers has placed a large responsibility on Barry Callebaut’s farmer financing units. To support these units, technology systems and capacity development were needed, to asses, monitor and report on the portfolio. The establishment of these professional internal departments and hiring qualified staff has been expensive. Grant funding has been used to overcome this issue, but a more scalable solution is needed in the future.

Partnerships needed to develop technology, reduce cost and scale trainings

The second challenge is in assessing the viability of farmers and ensuring they receive tailored training and support. This is also a significant driver of costs. As a solution, Barry Callebaut has been working with various partners to identify and develop technology to reduce cost and scale tailored trainings.

A supportive enabling environment helps mitigate costs and risks

Third, the program has illustrated the need to continue building an enabling environment, with many supporting stakeholders. In the past years, changing regulatory conditions have demanded a high degree of flexibility from the company which translates to unforeseen costs.

Currency is one of the key barriers to increase availability of finance

Finally, foreign exchange risk remains an issue, for all investments that receive international funds. The dollar-based trade of the underlying commodity notwithstanding, currency is one of the key barriers to increase availability of finance and a key driver of costs.

The Farm and Cooperative Investment Program (FCIP), has since been set up to help tackle some of these issues in Côte d’Ivoire.  The FCIP aims for greater professionalism of farmers and cooperatives in their ability to manage and access finance. By supporting banks, micro-finance institutions, and commercial agribusinesses to offer suitable and affordable medium and long-term loans directly to cocoa producers and cooperatives.

To learn more about how IDH and partners are increasing access to finance for cocoa farmers and cooperatives in Côte d’Ivoire, read more in our impact research report here.

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