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