TechnoServe was founded in 1968 and has had who knows how many projects around the world stressing business development that leads to economic development. The Coffee Initiative was the very first Agri-Business project funded by the Gates foundation and has to be one of the largest ever implemented by TechnoServe, if not the largest (from what I have gathered, before the Gates Foundation showed up in the last decade, grant sizes from various funding organizations like USAID, Ford Foundation, The World Bank, etc. were either for small projects researching specific topics and employing 5 people or huge $100M+ programs that took on huge issues with broad topics like HIV/AIDS prevention or community development). On a related note, we meet people everyday who are here working on all kinds of different projects that are funded in a variety of ways whether it be a Clinton Foundation and Partners in Health funded program building hospitals and training doctors or any of the dozens of programs funded by USAID and the UN. There are also a number of people who have visited East Africa on vacation and thought some of the crafts could be imported to the U.S. and sold at a premium so small-scale programs are set up that provide jobs to a handful of people and ultimately funnel the profits back to the employees for training, healthcare, school fees, etc. (The cooperative where the Christmas presents our families receieved were made was started by a woman from Chattanooga and now has a storefront in Washington, D.C. to distribute the laptop cases, oven mitts, aprons, purses, etc.) While these programs are much smaller in scale than the Coffee Initiative, they are essentially using the same model as TechnoServe that relies on teaching business skills to spur economic growth (This story about Ugandan Bead Makers in the New York Times is quite normal across East Africa).
So back to what I am doing...The Coffee Initiative at its core provides comprehensive technical assistance programs throughout the coffee production cycle to various stakeholders. These programs include agronomy training (pruning, fertilizer usage, soil testing, etc.), coffee quality testing and training (aka "cupping"), general business education (cooperative management, equipment manufacturers, etc.), and market linkage to coffee buyers and roasters. We have constant interaction with these stakeholders including national coffee boards, coffee processing machine manufacturers, coffee exporters, and international roasters. While this brief description doesn't begin to do each portion of the program justice, it should give you the idea that this is not a fly-by-night operation. There are over 60 people on the ground in Rwanda and probably nearly 300 across the four countries and the U.S. Of the project's headcount, there are no more than 25 Westerners on staff. There is a great Business Week article here that tells more about the Coffee Initiative that is a little too generous on Peet's role in the whole program (I guess there have to be buyers!), but the video is excellent and filmed with people I work with in the Starbucks cupping lab upstairs from our office. Also see the video below put together by TechnoServe on Athanasie Musabyimana who is a Rwanda coffee farmer involved with the program:
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Historically in East Africa, the "wet process" has been completed at home in a basin of some kind or in huge washing stations (or "factory" in Kenya) on coffee plantations. The typically washing station looks like a huge water slide with a roof over it and requires a substantial amount of water and labor (i.e. not very efficient or cost effective except at very high volumes). As you might imagine, the quality of home-processed coffee is not very good and the large washing stations have a number of issues related to coffee volumes, operations costs, and water sources, among other things. This is where the TechnoServe Coffee Initiative comes in to help farmers and cooperatives adopt a different business model that focuses on maximizing yields from coffee trees and the utilization rate of much smaller, eco-friendly washing stations and minimizing wasteful spending and corruption. The one pictured below can process 500kg of coffee cherry per hour and at least 125,000kg in a season. That would result in about 20 tons of "fully-washed" green coffee.
So it has been my responsibility to identify potential funding sources, meet with them, and push the financial institutions along their funding process. Since my arrival, I have developed a bank-friendly pitch book on the project, met with dozens of financial institutions across the region, created business plans for cooperatives in all four countires, and am now in the midst of pursuing the most interested parties and negotiating terms. All of this while figuring out exactly how coffee goes from a little red berry when it comes off the tree to being sold to a roaster (i.e. Starbucks) as a green bean to getting to your table as a brownish thing you grind and brew in water (as the Italians said over Christmas with a smirk "Americano").
The financing needs vary by country since each country has a slightly different coffee model with different regulatory requirements, sales and export systems, and capacity constraints. Coffee is highly regulated in all of these countries because it is often the leading provider of foreign exchange for the governments and has been a critical part of the local economy for decades. The funny thing about this is that many Africans don't drink coffee at all, preferring tea, and some of the most rural farmers don't understand why they grow it at all since they have absolutely no use for it. Our goal is to find sustainable funding sources that engage local lenders and when possible can be applied across our four countries (Ethiopia, Kenya, Rwanda, Tanzania).
On a side note, I am pleased to write that just last week, we finalized the financing for 14 new washing stations in Rwanda, totaling around $185,000. Some of the machines were financed by a local coffee service provider (local or international business that does dry milling, bagging, marketing, and exporting of the coffee...and all of this varies by country but that is the gist of it) and some machines were financed by the largest bank in Rwanda in terms of rural branches, Banque Populaire du Rwanda. To give you a sense of the capacity building that had to be done with BPR (though all of the banks have the exact same issues), we first met with them shortly after my arrival in early September 2009 and it took a full six months to explain our model, line up guarantee providers, explain the model again, put paperwork in place, explain model again, and find all of the people who need to sign with their appropriate rubber stamps (In Africa, you aren't anything without a rubber stamp). In the banks 35 year history, it had never granted a U.S. Dollar loan, even though the Dollar is essentially the only trade currency in the region, and this loan was the first. I can't begin to describe all of the hoops we had to jump through to do this, and I was literally camped out a BPR headquarters for the two weeks prior to the money being disbursed. Even at BPR, they joked that I was a part-time employee and they wanted to get me a badge, of course with a stamp. The best way to describe the mindset of the banks here the first question from any commercial bank during any meeting (it has to be repeated over and over again) has been "What type of guarantee are you providing?" The only use of a guarantee I was familiar with in the U.S. was when people graduated from college, moved to New York, and couldn't afford their apartment, someones parents would be put on the lease as a guarantor. In Africa, a guarantee is typically a cash infusion into the bank ranging from 50-100% of the loan. For example, if you wanted a $100,000 loan to buy a new piece of heavy equipment, the banks would require you (or someone else willing to do this) to deposit $100,000 into the bank so that the bank could then loan you $100,000. All of this while the bank is charging 15-20% interest (on someone else's money!). The banks' aversion to business lending and unwillingness to assess risk appropriately is impossible to believe until you hear it repeated over and over again. So these are the conditions we are working under, and I am certain it would be impossible for me as individual to walk into a bank, apply for a $5,000 loan to start a business, and receive money within six months, if at all.
This financing in Rwanda is a big achievement for the Coffee Initiative since historically the washing stations and the working capital have been financed through a patchwork system using social conscious lenders, development organizations from various countries, and even TechnoServe itself (see above...this is not what we are supposed to do). This is the first time the Coffee Initiative has navigated the difficult financing environment and accessed capital expenditure financing from a local commercial bank in truly sustainable way. The first full-time finance person, Michelle (my boss), was hired shortly before I arrived and this success demonstrates the need for more resources to address the financing challenges for the program as a whole.
All of that being said, you might be wondering what how does all this help the farmer. With the end goal of doubling farmers' incomes, the Coffee Initiative focuses on increasing the amount of coffee produced and almost more importantly on improving the quality of the coffee that is produced. Most coffee in the U.S. comes from large plantations in Latin America that is produced in bulk very cheaply with little focus on quality. As the world's demand for "luxury items" has sky-rocketed over the last few decades from yachts to shoes to bottled water, the everyday cup of Folgers out of the blue tin doesn't get it done anymore. With the rise of Starbucks and other boutique coffee outlets, Americans and much of the rest of the developed world are happy to spend $7.00 for a caramel macchiato with an extra shot of espresso and dollop of whipped cream twice a day. What the Coffee Initiative is trying to do is make sure the farmers get a larger share of that $7.00. This is different than products that are "organic," "free trade," " or "pesticide free" (though the coffee may be some or all of those things and I have another post about that coming). It is about helping farmers produce more high-quality coffee that roasters like Starbucks will pay a premium price for because the consumer wants to know that they are buying truly some of the best coffee in the world from the Virunga Mountains in northwestern Rwanda or the region around Jimma in southwestern Ethiopia. In the end everyone wins since the farmers increase their income, the roasters get the social-responsible marketing cachet with increased sales, and the consumer gets the coffee they want (or to go with a regular theme of mine, they think they NEED).
For those of you who don't drink coffee or buy luxury items (like me!) and have little context for how big this market is, please see the following links from some major international roasters, boutique coffee shops, and other sources that demonstrate what must be huge consumer demand for coffee (keep in mind that buyers might pay anywhere from $0.50 to $10.00 per kilogram of green coffee, with our cooperatives getting $2.50+ for specialty-grade coffee, that is then sold roasted in 12-ounce bags (roughly a third of a kilogram) for $8.00+):
For those of you who don't drink coffee or buy luxury items (like me!) and have little context for how big this market is, please see the following links from some major international roasters, boutique coffee shops, and other sources that demonstrate what must be huge consumer demand for coffee (keep in mind that buyers might pay anywhere from $0.50 to $10.00 per kilogram of green coffee, with our cooperatives getting $2.50+ for specialty-grade coffee, that is then sold roasted in 12-ounce bags (roughly a third of a kilogram) for $8.00+):
- Stumptown Coffee Roasters Vunga Blend - Vunga is a TNS-supported cooperative and Stumptown paid almost 50% more than any other buyer last year and included farmer payment stipulations in the purchase price. They are selling this coffee for $16.50 per 12-ounce bag.
- Peet's Uzuri African Blend - Peet's homepage is pretty much dedicated to this blend
- Bourbon Coffee - This is a purely Rwandan brand owned (we think) by some high-level government officials with three outlets in Kigali that attempt to be the first Western-style coffee shops in Rwanda with wireless internet and speedier service (i.e. less than two hours). Bourbon has just opened a store in Washington, D.C. (near Dupont Circle) with plans to open on Boston and DC as well. In the U.S., I assume these shops will feel like any other coffee shop that everyone is familiar with by now, but in Rwanda the clientele is largely expats, tourists, and upper class Rwandans and the concept is revolutionary. Lucy's family received examples of all of their blends (100% Rwandan coffee) for Christmas this year and the reviews were quite positive so if you are in DC please stop by and let us know how it is (even though this coffee receives no direct assistance from TechnoServe).
- New York Is Finally Taking Its Coffee Seriously
- Peet's Commitment to Quality Coffee Creates Sustainable Change for East African Farmers
- Crop to Cup - another small roaster that has specific feature that lets the consumer trace where the coffee was produced
- Peet's Community - The TechnoServe Coffee Initiative is critical to the ultra high end blends and roasters since without us it is much more difficult for them to source the best coffee out of East Africa.
So this is a long post that has been in the making for a while with a couple more in draft form but please send any questions or comments along so I can better address specific topics. I am committed to being a better blogger!
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