3.2.4.4. Costaleo Opportunities and Constraints Analysis

Framework	Situational Analysis	Opportunities to Upgrading	Constraints to Upgrading	Recommendations
Structural Elements of Value Chain
End Markets	Consumers at supermarkets, hotels, and restaurants internationally	Supply exceeding demand Growing demand for specialty coffees	Lack of means and economic incentives for farmers to invest in quality upgrades	Increase cooperatives' knowledge of quality control for specialty coffee Increase farmers' access to credit for upgrades through cooperatives or other mechanism
Business Enabling Environment	Limited and sporadic government support for training, extension and financial services	Existing government accreditation program for extension service providers	The municipal officials consider agriculture a major threat to protecting wildlife.	Improve efficiency and execution of government-sponsored training programs
Vertical Linkages	Vertical linkages exist from large input suppliers to producers through smaller retailers, from producers to local traders, local traders to larger trading and processing companies, and from those larger companies to exporters; exporters are vertically linked to roasters and finally importers.	CafeNuevo, major coffee company, is interested in making a more direct linkage with Costalean smallholder farmers through cooperatives, but cooperatives lack the necessary experience to deal with a major exporter Local traders provide some credit to producers	Cooperatives lack experience in requirements of large exporters and in supplying large quantities of high-quality coffee Traders sometimes exploit farmers' lack of market knowledge and set high interest rates on loans	Improve cooperatives' ability to supply CafeNuevo through training and foster linkages between cooperatives and CafeNuevo Increase farmers' access to market information to improve value chain finance
Horizontal Linkages	Most farmers belong to coffee cooperatives, but they are not functioning well	Prevalence of cooperatives	Cooperatives lack technical expertise, marketing experience and commitment of members	Strengthen cooperatives through training, and once cooperatives obtain adequate knowledge, encourage them to buy coffee in cherry stage and perform more services (drying, grading, sorting)
Supporting Markets	The requirements of commercial banks prohibit small farmers from borrowing Cooperatives are meant to provide training, extension, business planning and marketing services, but the staff lacks knowledge and experience	Vibrant commercial banking sector and prevalence of cooperatives that could provide services	Restrictive collateral requirements of commercial banks Poor execution of rural credit programs leads to a culture of loan delinquency, preventing financial service institutions from entering the market Inexperienced cooperative staff	Work with commercial banks to develop new products to reach smallholder farmers Strengthen cooperatives through training and improved management (business planning)
Dynamic Elements of Value Chain
Value Chain Governance	Governance is relational, but the information transfer to farmers is not complete, and knowledge and skills are lacking	Relational governance patterns allow producers to supply differentiated products to the market, which can translate into higher profit margins	Current lack of market information, access to credit for upgrading, and technical know-how constrain producers' ability to differentiate	Improve access to market information, access to credit and improve producers' and cooperatives' knowledge of harvest and post-harvest procedures for specialty coffees
Inter-firm Relationships	There is a lack of trust in vertical relationships among farmers and traders, as well as in cooperatives, where side-selling often occurs. Market information does not flow effectively down the chain to farmers	Farmers are willing to cooperate with other farmers to achieve economies of scale and reach higher-value buyers Traders are willing to provide credit to farmers Large coffee companies are interested in sourcing from smallholder farmers if they can work effectively through cooperatives	Lack of commitment to cooperatives because they do not provide services adequately or add value to the transaction Lack of trust in traders, who sometimes exploit farmers Cooperatives' inability to sell to large coffee companies because of lack of management and other skills	Strengthen cooperatives to better serve farmers and take advantage of the opportunity for exporting to large coffee companies Formalize credit mechanism from traders within the value chain to avoid exploitation and build trust