Final report

Assessing the Impacts of Certification Systems on Rural Poverty:

A Case of Organic and Fair Trade Certified Coffee in Nicaragua

by Jason Donovan

CATIE Turrialba, Costa Rica

March 2010

Table of contents

Executive summary ................................................................................................................. 3

1 Background...................................................................................................................... 9

2 Methodology for impact assessment ............................................................................. 10

3 A theory of change......................................................................................................... 15

4 Results: enterprise-level analysis .................................................................................. 23

5 Results: household-level analysis.................................................................................. 33

6 Conclusion..................................................................................................................... 42

References ............................................................................................................................ 45

Annex: Executive summary in Spanish (Resumen ejecutivo) ............................................... 46

Acknowledgements This study was made possible by a grant to CATIE from the Sustainable Food Laboratory, with funding from the Ford Foundation. It was implemented in close collaboration with Lutheran World Relief (LWR) and the Unión de Cooperativas Agropecuarias Soppexcca, R.L. Ingrid Herrera and Rafael Vallecillo provided invaluable assistance in the collection of household-level data in Nicaragua. Special gratitude goes to the managers and coffee producers of Soppexcca who graciously extended their time and patience for the collection of primary data. The report has benefited from insightful comments and suggestions by Fátima Ismael Espinoza (Soppexcca), Rigoberto Pineda (Soppexcca), William Weaver (LWR), Jean Waagbo (LWR), Carolina Aguilar (LWR), and Nigel Poole (University of London-SOAS). Finally, I would like to recognize the important role played by Ree Sheck, of the Communications Office at CATIE, in preparing this report for publication. Any errors or omissions contained in this report are the sole responsibility of the author. The findings and conclusions contained here are those of the author and do not necessarily reflect official positions of CATIE, the Ford Foundation or the collaborating organizations. For more information, please contact: Jason Donovan, CATIE 7170, Turrialba 30501, Costa Rica; Telephone: (+506) 2558-2217; e-mail <jdonovan@catie.ac.cr>.

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Executive summary

Background In 2008, the International Social and Environmental Accreditation and Labeling (ISEAL) Alliance, in collaboration with various partner organizations and consultants, began the process of drafting a code for assessing the social and environmental impacts of voluntary standards systems. That Impacts Code will provide a framework for standards systems to develop and implement a monitoring and evaluation program that will show the contribution of the standards systems toward long-term change (ISEAL 2009). The Impacts Code will not provide detailed guidelines for designing or carrying out impact assessment studies. In the context of this study, we develop and test an assessment methodology that is compatible with the Impacts Code, which could be used when changes in rural poverty are the major concern. The methodology presented here focuses on identifying changes in livelihood asset endowments, which are made up of natural, human, social, physical and financial capitals, as a result of participation in value chains for certified products. Changes in the various capitals with which the poor households are endowed, and the ways in which they use these capitals, can provide valuable insight into understanding poverty. Its explicit focus on understanding changes in asset endowments of the rural poor is what distinguishes this methodology from other impact assessment methodologies. Given the importance of long-term access to markets for certified products, the methodology also addresses the changes in the business viability of those enterprises with direct and sustained contact with the rural poor, which in many cases are cooperatives and other forms of producer organizations. The methodology was tested through the implementation of two case studies in Central America: one focusing on organic and fair trade certification for coffee in northern Nicaragua and the other focusing on Forest Stewardship Council (FSC) certification for community forest operations in the Petén region of Guatemala.

The case of fair trade and organic coffee in Nicaragua In Central America, the integration of small-scale producers into value chains for certified agricultural products has been promoted for reducing rural poverty and protecting the natural resource base as well as responding to consumer demands for specialty products, including organic and fair trade coffee. During the early 2000s, development projects and nongovernmental organizations (NGOs) provided considerable support to coffee cooperatives in Nicaragua in an effort to counteract the effects of the coffee crisis—a period between 1999 and 2003 during which international coffee prices fell from US$1.20/lpound to between US$0.45 and 0.75/pound, and many producers in Central America were unable to cover their production costs. Partnerships with fair trade and organic coffee cooperatives continue to be sought out by civil society as a sustainable option for reducing poverty and promoting environmental and social responsibility in the rural sector. For buyers, partnerships with coffee cooperatives have facilitated their access to high-quality raw materials to meet the growing demand for organic, fair trade and gourmet coffees in European and U.S. markets. This case study focuses on the experiences of the second-tier coffee cooperative Soppexcca and its individual members in value chains for organic and fair trade certified coffee and how these experiences were shaped by long-term relations with civil society and buyers over the span of nearly seven years. Interventions by civil society and buyers have been critical both for Soppexcca, allowing it to build strong links with hundreds of smallholder coffee producers that has been critical for its long-term positioning in organic and fair trade coffee markets as well as for Soppexcca’s members, enabling them to expand production, convert to organic production and improve the overall productivity and quality of coffee production.

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Objective and methodology The objective of this study was to identify the changes in asset endowments and poverty since 2002 among coffee producers affiliated with Soppexcca and who participate in markets for certified organic and fair trade coffee. Data collection focused at the level of the second-tier enterprise (Soppexcca Cooperative) and the household (Soppexcca members). At the enterprise level, we sought to understand how participation in organic and fair trade markets has facilitated Soppexcca’s asset building and the extent to which this has translated into improved economic viability with social and environmental responsibility. At the household level, data collection sought to identify changes in asset endowments as a result of participation in value chains for certified coffee. We also identify plausible links between the changes in asset endowments and their potential causes based on an understanding of the various interventions carried out in support of Soppexcca and its members and of the overall market and political-legal context, as well as perspectives of Soppexcca and their members. Data collection methods included analysis of secondary information and semistructured interviews with households (n=296) and key informants (n=7).

The context Over the past 10 years, international prices for coffee plummeted to record low prices (1999–2003) and then quickly recovered (2004–2009). Currently, international coffee prices are roughly at par with the floor price for fair trade coffee (US$1.26/pound). Relatively low international coffee prices provided strong incentives for producers to sell to cooperatives such as Soppexcca, which can offer fair trade prices but which also imply increased costs in production (quality control) and marketing (delayed final payment of up to four months). As international prices increased, the prices offered by fair-trade cooperatives decreased relatively, thus providing incentives for producers to sell through mainstream marketing channels. Coffee buyers have also increased their demands on cooperatives for added coffee quality and certification. While this may allow cooperatives to command prices well above the fair-trade floor price, it also places requirements on producers to meet strict quality standards. State support for the coffee sector, Nicaragua’s most important agricultural export, has been limited: neither technical assistance nor credit is provided to the coffee sector. In the wake of the coffee crisis, the commercial banking sector is reluctant to extend short-term credit to the smallholder coffee producers, in part as a response to the major losses suffered by the sector during the coffee crisis. Long-term credit is basically unavailable to these suppliers. The design and provision of services for the coffee sector has been left to civil society organizations, international coffee buyers and the cooperatives themselves. For most small-scale coffee producers, participation in coffee cooperatives is the only option for accessing credit and technical assistance.

Outcomes and impacts at the enterprise level Changes to Soppexcca’s overall asset endowment have been mixed but generally positive since 2002. Both private and public sector interventions have played a major role in these changes, along with the dramatic changes in coffee markets during this decade and the overall lack of support for the coffee sector, both of which have provided incentives for small-scale producers to seek out cooperative membership. • Natural capital: Total area under coffee production between 2002 and 2009 increased

from 596 to 850 manzanas,1 doubling total production volumes in this same period from nearly 600,000 pounds of green coffee in 2002–2003 to more than 1.2 million in 2008–

1 1 manzana (mz) = 0.705 hectare (ha)

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2009 (note: evidence from sampled members). On the other hand, access to certified organic coffee has declined due to fewer certified producers and stagnant productivity levels.

• Human capital: There are strong skills in business administration and marketing—highly concentrated in top leadership positions; in-house capacities for organic coffee production and processing are growing, including preparation of prepared coffee. On the other hand, there is major instability of technical assistance staff (due to reliance on project funding and little opportunity for increased member contributions) and limited capacity of Soppexcca members elected to leadership positions to provide strategic direction and oversight for Soppexcca operations.

• Social capital: Strong, long-term bonds have been maintained with a small group of international coffee buyers; new buyers exist in growing specialty coffee markets; stronger bonds have been established with civil society organizations and fair trade lending organizations; and increased volumes of coffee were purchased from affiliated producers (average increase 30% per year 2001–2008).

• Physical capital: Soppexcca constructed an office and warehouse and 11 base cooperative offices. A dry coffee-processing plant was purchased in 2009.

• Financial capital: Funds for credit doubled between 2004 and 2008, from US$201,617 to US$461,324; however, credit offered per member is generally low (requiring producers to seek out additional credit from other sources or sell coffee in local markets). Funds for operating and investments are unchanged over the period; no accumulated savings were reported. The debt-to-earnings ratio is currently high (roughly 50%).

Overall, the long-term business viability of Soppexcca has increased markedly due mainly to major expansions in financial, human and social capitals. Soppexcca has proven its ability to respond to crises (including the repayment of a US$600,000 debt) and maintain its membership base; however, Soppexcca remains highly dependent on donor support for the expansion of its credit program and entirely dependent on donor subsidies for the operation of its technical assistance program (estimated cost of $50,000 per year). It also faces major limitations to raise capital from member contributions and through the sale of coffee. The nearly $1 million recent investment in a dry coffee-processing plant has potential to increase operating income for Soppexcca, but such benefits are likely to materialize only in the mid to long term.

Outcomes and impacts at the household level We identified the following changes in asset endowments among the sampled households: • Natural capital: Area under coffee production expanded by 33% of households (average

increase=1.1 ha); access to fertilizer by conventional producers increased; access to organic fertilizer increased, However, 37 formerly organic-certified households did return to conventional production mainly because of low yields. Among organic certified households, recent experiences suggest that on-farm options for the production of fertilizers (such as bocachi and compost) were insufficient to create relatively high levels of productivity. The current major source of fertilizer (based on chicken manure), which was utilized on average by 35% of organic certified households between 2008–2009 and 2006–2007, was more successful in improving yields but is under threat by changes in the interpretation of organic certification standards systems. Currently, most organic producers do not use any fertilizers on their plantations other than recycled coffee pulp.

• Human capital: Better practices are used in wastewater treatment (n=141) and in the use of coffee pulp in production systems (n=115); there is implementation of organic production practices (n=100). Nearly all sampled producers demonstrated increased understanding of shade and plant tissue management and quality control measures.

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• Social capital: Stronger bonds with Soppexcca were forged through more services offered (credit, technical assistance), emergency assistance (for example, donations/credit for funerals and other emergencies) and proven ability to maintain relations with buyers and donors, though, a high percentage of coffee is still sold outside of Soppexcca: median=40% in 2006–2007 for both organic and conventional producers.

• Physical capital: Investments totaled more than US$220,000 (2004–2009) among all sampled households, with the majority of these investments for construction of infrastructure and purchase of equipment for wet milling: median investment $200 per household. Physical capital accumulation for all productive activities was highly constrained (<US$50) among 25% of sample. For households with five or more manzanas of production area, no clear relation was found between investments in physical capital and total area under production, reflecting the role of access to long-term credit for the construction of wet-milling facilities for smaller, but relatively productive, coffee plantations

• Financial capital: In recent years the price premiums achieved by Soppexcca in markets for certified coffees have declined. This is the result of mainstream coffee prices having increased faster than prices for certified coffee: the price premium for organic and fair trade certified coffee in 2008 was 41% lower than the premium in 2005, while the price premium for fair trade certified (nonorganic) coffee was 64% lower between the same two years. Among Soppexcca-affiliated producers, nonorganic producers achieved the highest gross income per manzana in 2007–2008, attaining an average gross income of $4,947. Ex-organic producers achieved a gross income similar to that of the nonorganic ($4,757), while gross income per manzana of coffee was significantly lower for organic producers, at $3,561. The relatively low income by organic producers reflects low productivity relative to nonorganic production, combined with the relatively high prices paid for nonorganic coffee in the 2007–2008 production year. Improved credit access was reported for 75% of members; however, distribution is highly skewed toward base cooperatives with higher incomes: average credit was US$2,368/member in 2008 for three base cooperatives with the highest average annual income, compared with an average credit of US$362/member for three cooperatives for lowest average annual income. Side-selling among conventional and organic producers was about 40% of total annual production in 2008. For most sampled households, Soppexcca-provided credit was their only access to credit.

For most producers vulnerability to external shocks has been reduced through their affiliation with Soppexcca. Among the vulnerability-reducing services provided by Soppexcca are • Secure access to higher-value coffee markets in the face of unstable international

marketing conditions for conventional coffee. • Assess to technical support for production problems and increasing productivity. • Access to project support beyond coffee production, including health care campaigns,

scholarships for education and food security programs (seed and livestock donations). • Access to credit by nearly 75% of sampled membership at rates generally lower than

banks or intermediaries. Most households perceived low risk of loss of land title (and willingness of Soppexcca to restructure debt), as a result of negative shocks in climate, prices, or household labor supply (i.e., divorce or death).

• Access to emergency credit (without interest if paid off in same growing year).

Overall appreciation The integration of small-scale coffee producers affiliated with Soppexcca into value chains for certified organic and fair trade coffee has had mixed results in terms of asset building at the enterprise and household levels.

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From the perspective of Soppexcca, participation in value chains for fair trade coffee has been critical for its long-term asset accumulation. Its very existence today is due, in large part, to extensive support received from fair trade buyers in the early 2000s, as Soppexcca struggled to emerge from the ashes of its predecessor organization, with $600,000 of debt. Most of Soppexcca’s funds for short- and long-term credit has been acquired though fair trade lenders and development projects with a focus on social and environmental responsibility. Soppexcca has maintained strong long-term relationships with various bilateral donors and NGOs, which in turn have provided Soppexcca with subsidies and grants for operating its technical assistance and credit operations and for accumulation of physical capital. The development of human capital (among Soppexcca members for business administration and oversight) and social capital (links between Soppexcca and its members) has not been a major focus of interventions, and these aspects of social and human capital remain relatively weak.

Soppexcca continues to face major challenges to fund its operations and is dangerously dependent on external support. The short-term outlook for Soppexcca is one of positive but slow growth. However, mid- to long-term growth prospects will likely depend on additional donor support. Such support will be needed to 1) expand short- and long-term credit programs, 2) find long-term solutions for increased productivity of organic and low-input conventional producers and 3) support the administration in the continued development of its capacities (especially in the event of a change in the administrator).

At the household level, organic certification has had significantly positive impacts for a subgroup of Soppexcca members: mainly those who had relatively high levels of natural, financial and human capital before entering Soppexcca. These producers have been able to apply intensive production methods for organic production and have not suffered major declines in productivity. This subgroup makes up approximately 20% of the sampled organic producers. Those organic producers with the lowest asset endowments have benefited marginally from participation in organic production. These producers (approximately 80% of sampled organic producers) have not suffered major changes in production costs or productivity but have benefited from the price premiums associated with organic and fair trade coffee.

A significant number of producers (n=40) have dropped out of the organic program over the past five years due to 1) reduction in relative price premium, 2) major declines in productivity and 3) increased production costs (mainly related to labor). In some cases, these ex-organic producers faced a period of asset de-accumulation as a result of declining productivity and lack of access to financing for replanting in their coffee plantation.2 In the future, the design of interventions to facilitate access to organic coffee markets for poor producers should better take into account the potential for negative impacts of organic conversion and production and provide appropriate safety nets to reduce the risk of asset de-accumulation.

During the coffee crisis, numerous publications claimed that participation in organic and fair trade coffee markets was the key to improving producer income, based mainly on the price advantage for fair trade coffee, with limited understanding of the constraints faced by households to increase their sales to cooperatives. More recently, a growing number of articles have emerged that criticize fair trade for failing to deliver significant price premiums when international prices of conventional products are high. Our study shows that a sole 2 Since 2003, it has been common for small-scale coffee growers affiliated with Soppexcca to have access to Soppexcca-provided long-term credit for replanting their coffee plantation. However, several ex-organic households interviewed in the context of this study faced such extremely low levels of productivity (due to lack of inputs during the organic period and the resulting death of a significant percentage of coffee plants), that Soppexcca is unable to offer them long-term credit because of their inability to repay the credit with delivered coffee.

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focus on the absolute and relative price differential for fair trade coffee fails to account for fair trade’s role in shaping producers’ relations with cooperatives and other chain actors over the long run. In fact, the price differential, while obviously crucial for improving incomes during times of depressed international prices, is only one of several ways in which participation in Soppexcca and similar fair trade certified cooperatives can promote asset building and reduce vulnerability. Examples include an expanded area for coffee production, reduced vulnerability to market shocks, improved access to development projects (training, services, grants, donations), improved production techniques though human capital formation and improved quality through better milling infrastructure and postharvest management. We also show that more attention needs to be placed on the long-term building of assets at the level of cooperative and households. Access to short- and long-term credit plays an important role, but will have only limited effects on those households with the lowest endowments of capital.

The design of future interventions to support smallholders in certified organic markets should include measures to promote increased productivity and protect the most vulnerable producers from the risks of declining productivity and plant health. Increased productivity will depend in part on secure access to fertilizers through a combination of credit, subsidies, and technological innovation, as well as the uptake of good production practices by producing households. In addition, improvements in the provision of technical assistance will be required for more frequent visits, strengthened communication between extensionists and producers, closer monitoring of production by extensionists, and rapid and effective responses to potential pests and diseases (including rapid access to credit and technical assistance for production-realized emergencies). Improvements in technical assistance will also require greater coordination between the technical assistance and credit units within Soppexcca, whereby long-term credit is conditioned to specific investments to increase productivity. Insurance and other forms of risk sharing may help to increase the number of organic producers and reduce the dropout of producers during periods of reduced price premiums (relatively high nonorganic coffee prices). Achieving these improvements will require major changes in the organization and financing of Soppexcca’s activities, which in turn will require extensive coordination among Soppexcca, service providers, donors and research organizations.

This study is a first attempt to develop an assessment methodology focused on asset building by smallholders and upstream enterprises within the general framework provided by the Impacts Code. In designing the methodology we aimed to strike a balance between scientific rigor and ease of implementation. During implementation, careful attention was given to ensure objectivity and precision and to include local partners such as Soppexcca and LWR in the assessment. The focus on asset building produced a more compressive understanding of changes in poverty and business viability than is typically produced by other assessment methodologies. On the other hand, the amount of data required and skills needed for data management and analysis were extensive. While local partners provided critical inputs to the assessment, their involvement was limited by time constraints. Some degree of ”assessment fatigue” may have also been a factor in direct participation of Soppexcca: during the period in which this assessment was being carried out, one of our three assessments of fair trade coffee was underway with Soppexcca. Further work is necessary to better understand the options for increasing the ease of implementation without overly compromising the richness of the asset-building framework and ensuring that the assessment process itself is useful for local organizations. Specific areas of focus include: identifying a core set of indicators for the different capitals that would work across various standards systems, standardizing the reporting formats (both for internal use and for public use), and increasing the coordination of partner organizations and assessment teams for improved group learning and reduced costs.

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1 Background

Development of the Impacts Code In 2008, the International Social and Environmental Accreditation and Labeling (ISEAL) Alliance, in collaboration with various partner organizations and consultants, began the process of designing a code for assessing the impacts of social and environmental standards systems (final version to be available in 2010). The Impacts Code will provide a framework for standards systems to develop and implement a monitoring and evaluation program, enabling collection and analysis of data that will show the contribution of standards systems toward long-term change (ISEAL 2009). In the case of social and environmental standards systems, impact assessment is difficult to do well because of the complex context in which they are applied, including such factors as market conditions, buyer relations, interventions by civil society and government regulations. The Impacts Code will not provide detailed requirements or guidelines for designing or carrying out impact assessment studies. Rather, it will provide guidance for how a standards system will develop the overall structure for assessment, provides the theoretical basis and the specific approach for understanding how change will be brought about, and provides requirements for evaluating the data, interpreting results and communicating the conclusions reached.

Putting the Impacts Code into practice In the context of this study we seek to 1) develop and test a methodological framework for assessing the poverty impacts of certification systems based on the framework presented in a preliminary version of the Impacts Code (ISEAL 2009) and 2) to identify the impacts of various standards systems (FSC, organic and fair trade) on rural poverty in Central America. Collaboration rests on the idea that those charged with carrying out an impact assessment do not have access to methodologies for assessing changes in poverty as a result of participation in value chains for certified products. The framework presented here addresses poverty at the household level and business viability at the level of upstream enterprises3 by examining changes in critical assets—natural, human, social, physical and financial capital. Having identified these changes, the underlying causes must be identified by tracing the changes back to standards systems, interventions by buyers and civil society, or to factors relating to the overall market and regulatory context. The framework was tested through the implementation of two case studies in Central America: one focusing on organic and fair trade certification for coffee in northern Nicaragua and the other focusing on FSC certification for certified community forest operations in the Petén region of Guatemala. The results from the case studies provide insights both into the impacts of the standards systems and the performance of the methodological framework.

Assessing organic and fair trade certification systems in Nicaragua Between 1999 and 2003 international prices for coffee plummeted below the cost of production, from US$1.20/pound to US$0.45–0.75/pound. The Nicaraguan government responded slowly to the needs of coffee producers and workers during this coffee crisis,4

3 Upstream enterprises are those enterprises involved in transformation of raw materials, along with local intermediaries, that have direct contact with rural households. They may include cooperatives, producers’ associations, and privately owned companies. 4 The crisis is commonly attributed to structural changes in coffee markets that had been building since the early 1990s with the collapse of the International Coffee Agreement. In Central America, the crisis hit particularly hard due to relatively high production costs and high dependence on the crop for employment and foreign exchange (IADB 2002). The situation was especially critical for smallholder producers who depend on coffee-related income for most of their cash income. Disinvestment ravaged the coffee plantations owned by small-scale producers

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intervening in debt restructuring to the benefit off large producers late in 2001 but eschewing assistance to small-scale producers and coffee workers who bore the brunt of the social and economic impacts of the crisis (Varangis et al. 2003). During the crisis, producers, their cooperatives and civil society were enticed by the potential of price premiums in certified coffee markets and by the technical and financial assistance provided by development projects for making the transition to organic production. The promotion of small-scale producers and their cooperatives in value chains for organic, fair trade and otherwise high quality (or gourmet) coffee was a key element of donor strategies for dealing with the crisis (Varangis et al. 2003, Castro, Montes and Raine 2004; Bacon 2005).

The impact of organic certification systems on household poverty is an important issue since evidence suggests that organic coffee production lowers yields and income compared with what could be achieved using conventional methods (van der Vossen 2005). Moreover, the effects of fair trade certification must be taken into account, as globally, about half of fair trade coffee is also organically certified and vice versa. Recent independent assessments of fair trade certification have called attention to the fact that fair trade premiums have been unable to keep up with recent increases in the prices for noncertified coffee (for example, Fieser and Padgett 2009). In Nicaragua, studies indicate that coffee farmers are unlikely to significantly increase their incomes via participation in organic and fair trade value chains (Bacon et al. 2009, Valkila 2009) and that they still struggle to get out of debt nearly five years from after the coffee crisis (Wilson 2010). The impact of organic and fair trade standards systems on household poverty is a complex issue because production issues (production costs, yields), market issues (widely varying prices both in conventional and organic production, rising production and household consumption costs), and organizational issues (access to credit and other services).

This report presents the results from the assessment of the organic and fair trade certification systems of the Nicaraguan coffee cooperative Soppexcca and its members. Section 2 of this report presets the methodology applied for impact assessment, which was based on the framework presented in the Impacts Code. Section 3 presents the results from the case study. Section 4 presents reflections on the methodology and suggestions for next steps in tool development. 2 Methodology for impact assessment

Purpose of the assessment The purpose is to identify changes in poverty at the household level and changes in business viability at the upstream-enterprise level as a result of participation in value chains for organic and fair trade certified coffee. The assessment considers changes that go beyond the goals of the organic and fair trade certification systems—for example, changes in social and human capital. The broader focus that is implied by considering asset endowments is considered important for understanding the role of social and environmental standards systems in poverty reduction.

throughout Central America. The crisis was felt mainly by producing countries, as it coexisted with increasing values of consumption of coffee-based products in consuming countries (Ponte 2002).

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Assessment boundaries The assessment is limited to identifying the outcomes and impacts at the upstream segment of the value chain (rural households and the businesses that maintain direct relations with them). It does not include households that provide labor for coffee production. The geographic area is northern Nicaragua, specifically the departments of Jinotega and Matagalpa where the population of Soppexcca-affiliated coffee-producing households is located. The following value chain actors are included in data collection: • Chain actors: Soppexcca and its current members (both organic and conventional) • Secondary processors under the control of the standards system: Soppexcca • Traders under the auspices of the standards program: included indirectly (based on key

informant interviews with Soppexcca) • Other relevant actors: local intermediaries, local organic-certification organization

The following actors taken into account through secondary information: • Value chain actors downstream of Soppexcca (coffee buyers and roasters, retailers) • Standards-setting organizations • Auditors • Shippers

A four-step approach to assessment We use a four-step approach for assessing the impact of standards systems: • Step 1: formulation of a theory of change, based on a thorough analysis of the overall

context in which the households and upstream enterprises operate • Step 2: data collection at the upstream enterprise level, focusing on the extent to which

enterprises have built assets that are expected to translate into improved economic viability with social and environmental responsibility

• Step 3: data collection at the household level, focusing on changes in asset endowments and the resulting resilience or vulnerability

• Step 4: identification of impacts, based on results from Steps 1–3, as well as addition key-informant interviews for validation and triangulation

In carrying out Steps 1–3, a mix of data collection methods and tools is utilized. Included in this mix are analysis of secondary information, household surveys, key informant interviews, control groups and direct observation. None of the methods or on their own would effectively address the issue of attribution; even taken together, in many cases they will not allow full proof. However, combining the findings produced by different methods and tools, if properly triangulated, can provide a body of evidence that can be agreed, disputed or amended, which, in turn, allows for a reasoned and plausible judgment to be made.

Step 1: Formulating a theory of change In this step a theory of change is formulated, including the following elements: • Goals of the stakeholders in the promotion of organic and fair trade standards programs • Interventions carried out by buyers, civil society and other actors to meet the goals • Role of overall context (external factors) in achieving the goals • Potential impacts and outcomes based on interventions and context • Assumptions about how change occurs—how outputs lead to outcomes and impacts

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Information is collected from actors in the value chain (such as mid and downstream processors and buyers, NGOs and government agencies), as well as various key informants knowledgeable about the political-legal, market and economic context. In addition to providing input for the theory of change, information on the context is important for formulation on the questionnaires used in Step 3 (household data collection) and for unraveling attribution issues in Step 4.

Step 2: Identifying changes for upstream enterprises A focus on upstream enterprises is considered important for two reasons: 1) they can be major partners in or beneficiaries of the implementation of environmental and social standards systems and 2) they can play a critical role in determining the benefits obtained by smallholders through their participation niche markets (for example, organic and fair trade). Changes examined include those related to asset building and institutional arrangements (contracts, requirements, risk- or benefit-sharing mechanisms) among chain actors. Data collection for analysis of Soppexcca was carried out mainly by key informant interviews with Soppexcca staff and collection of secondary information. Among the Soppexcca interviewed were the managing director, director of extension, director of credit and members of the board of directors. Soppexcca supplied valuable secondary information related to membership (critical for design of the sample frame for household data collection), credit provision over past five years, relations with buyers, and business strategy and performance.

Step 3: Identifying changes for households This step involves collecting data from households (small-scale producers) to identify changes in terms of asset building and their underlying causes. A questionnaire generated quantitative and qualitative data on changes in asset endowments, resilience, production practices, income and access to services as well as the underlying factors of change.

Eleven base cooperatives of Soppexcca were included in the sample frame5. Cooperatives were chosen based on 1) distance from Soppexcca’s headquarters, with a roughly equal number of cooperatives located less than 25 kilometers, between 25 and 50 kilometers and more than 75 kilometers; and 2) the geographical closeness of households in a given base cooperative (whereby all things equal, cooperatives with a greater degree of closeness were preferred to cooperatives with a lesser degree of closeness). This reduced costs of data collection without introducing a serious level of bias into the sample frame. Interviews were carried out between May and August 2009.

Three types of households were distinguished in the sample: organic households, nonorganic households and ex-organic households. The impacts of fair trade were assessed across all the sampled households. The impacts of participation in organic standards programs were assessed by comparing the outcomes between organic and nonorganic cooperative members. Ex-organic members were included in the sample to understand the conditions under which participation in organic programs has not been economically or technically viable by households.

5 It is common for cooperatives to be organized into two levels―base cooperatives and second-tier cooperatives—when production is carried out by a large number of geographically dispersed small-scale producers. This organization allows for increased access to raw material and more efficient use of human capital in business administration and marketing (see Donovan, Stoian and Poole 2008 for details). In the case of Soppexcca, households are affiliated directly with a base cooperative, which generally includes households from a certain community or group of communities. Each of the 16 Soppexcca-affiliated base cooperatives selects five representatives to participate in Soppexcca’s General Assembly. Assignment of extensionists is currently based on base cooperative affiliation (two to three extensionists per base cooperative). Since 2008, as part of an initiation in decentralization, three base cooperatives have begun to take decisions on allocations of annual credit among their members (with final approval by Soppexcca).

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The sample included all organic and ex-organic households affiliated with Soppexcca and all conventional households from 11 of the 16 base cooperatives affiliated with Soppexcca (Table 1). In total, 296 coffee-producing households were interviewed, or 60% of the population of affiliated households. The only households from the segmented population not interviewed were those that had 1) sold their coffee-producing land and had moved out of the community, 2) refused to be interviewed or 3) were unavailable after two visits to their home. In total, about 30 producers were not interviewed. In cases where a single household included two types of members―for example, one household head was an organic producing member and other a conventional producing member―the one with the organic system was chosen. Within the household, both female and male heads of household were invited to participate in the interview. Questions related to production and land use were directed to those household members who directly participated in coffee production and harvest. In most cases, this was the male household head. Questions related to household consumption and changes in access to health care and education were directed to the female household head.

Each interview lasted between 45 minutes and 1 hour and 15 minutes, depending on the overall complexity of the production system and changes in assets. Four to five interviews were carried out per day by each data collector. Travel time between households was generally 15 to 30 minutes (walking). In a few cases, up to two hours were required to reach households.

Table 1. Coffee-producing households interviewed, by type and base cooperative Soppexcca base

cooperative # Nonorganic households

# Organic households

# Ex-organic households

Total # households

Julio Hernández 28 0 0 28La Unión 20 1 4 25La Unidad 5 0 4 9Osmán Martínez 15 4 0 19Feliciano Hernández 21 2 2 25Ernesto Acuña 17 2 6 25Los Alpes 24 8 1 33El Esfuerzo 19 20 0 39Jesús Rivera 20 2 9 31Bernardino Días Ochoa 14 11 6 31Juan Fernández 2 13 4 19Other base cooperatives 0 8 4 12Total 185 71 40 296

Step 4. Identifying impacts Impacts are identified based on the following: • Qualitative assessment of the changes identified and their potential causes (based on

information about the overall context) • Comparison of results between organic and nonorganic households affiliated with

Soppexcca • Interviews with key informants to understands the potential causes of changes

Engagement with stakeholders The following stakeholders were consulted at different points in the development and implementation of the assessment, including:

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• Soppexcca and LWR: identifying information needs and expectations and feeding back the results (Note: LWR has supported Soppexcca’s development in organic and fair trade markets since 2005)

• Group of researchers and development practitioners participating in the CATIE/Ford Foundation project for the development of impact assessment tools for value chain approaches: identifying the strengths and limitations of the assessment methodology, both in terms of assessment design and the actual implementation of the assessment in Nicaragua

A formal letter of agreement was signed with Soppexcca and LWR for the implementation of the study. The agreements specified the activities to be carried out along with the rights and obligations of the parties involved.

Roles and Responsibilities The following organizations and persons were responsible for specific activities within the assessment: • Overall management of the assessment: CATIE (Jason Donovan) • Stakeholder engagement processes: CATIE (Jason Donovan), LWR (Byron Castillo) • Data collection: CATIE (Ingrid Herrera, Rafael Vallecillos, Jason Donovan) • Data processing: consultant (Miguel Madrano) • Data analysis and reporting: CATIE (Jason Donovan) • Adaptive management and continual improvement: LWR (Jean Waagbo and William

Weaver), Soppexcca (Fátima Ismael) and other potential donors and chain actors Soppexcca staff did not activity participate in data collection. This allowed for confidentially of the information provided by households (and increased level of trust between household members and data collectors). Local guides were contracted for identifying Soppexcca-affiliated households in a given base cooperative.

Questionnaire adjustments and quality control A preliminary version of the household questionnaire was pretested with 15 coffee-producing households that belonged to an organic and fair trade cooperative with characteristics similar to those of Soppexcca. At various points during pretesting, the data collection team reflected on changes required to the questionnaire and techniques for better eliciting information from household respondents. Pretesting was also an important element in training the two data collection assistants, directly involving them in questionnaire design over several iterations.

Following the entry of the questionnaires into an MS Access database, the digitalized questionnaires were reviewed to ensure accuracy (similarity between written responses and digitalized responses) and identify contributions and errors in household responses. Contradictions and errors were addressed by triangulating information with Soppexcca technicians and responses from other members of the base cooperative. In cases of relatively major errors and contradictions, repeat visits were carried out with producing households to correct missing information or address any contradictions.

Resources The budget for implementing the assessment was approximately US$28,000. A total of 4.5 person months were applied to the assessment by CATIE staff. CATIE provided an all-terrain vehicle for data collection, LWR provided access to its field office in Matagalpa, Nicaragua, and Soppexcca facilitated information for the design of the sample frame and for the enterprise assessment. Fieldwork began in June 2009 and terminated in September 2009.

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3 A theory of change Overview This section presents a theory of change for Soppexcca and its members based on their participation in value chains for organic and fair trade certified coffee. In formulating the theory, four factors affecting the production and marketing of specialty coffee by Soppexcca and its members are considered: 1) production issues for coffee, 2) marketing issues for organic and fair trade coffee, 3) the political-legal context in Nicaragua and 4) external interventions by donors, project and buyers targeted to Soppexcca and its members.

Production issues for small-scale coffee producers There is a high variation in yields for green coffee in Nicaragua depending on the area under production: average yields are approximately 442 pounds/manzana (627 pounds/hectare) for producers with fewer than 20 manzanas (14 hectares), 1,292 pounds/manzana (1,833 pounds/hectare) for producers with 20-36 manzanas (14 to 25 hectares) and 3,510 pounds/manzana (4,979 pounds/hectare) for producers having more than 50 manzanas (35 hectares) (Flores et al. 2002). Small-scale producers in Nicaragua typically grow coffee in low-input or no-input systems with low yields. According to Valkia (2009), organic yields reported by organic certified producers were on average 510 pounds/manzana (724 pounds/hectare), with two-year average yields ranging from 203-1,855 pounds/manzana (288 to 2,631 pounds/hectare). The lowest yields were achieved with little or no fertilization, while the producers with the highest yields used intensive organic fertilization (up to 9,165 pounds/manzana/year—13,000 pounds of compost/hectare/year). Uncertified and fair trade certified producers using conventional methods reported yields from 365-4,078 pounds/manzana (519 to 5,784 pounds/hectare), also largely depending on the intensity of plantation management. There is more variation in conventional coffee yields: both organic and conventional yields can be very low with low-intensity management, but because organic yields tend to be lower when more intensive practices are concerned, the highest yields (more than 1,861 pounds/manzana—2,640 pounds/hectare) are missing on organically managed farms.

Coffee production requires a considerable amount of nutrients. Achieving the correct nutrient balance requires adding nutrients derived from fertilizers, shade trees (through litter and mycorrhizas) and subtracting nutrients lost through harvest and leaching into the atmosphere and waterways. Without fertilization, the nutrient balance is negative— unless yields are extremely low—and sustained coffee production requires regular application of organic or inorganic fertilizers (van der Vossen 2005). Organic fertilizers can have benefits in addition to plant nutrition. They can increase soil organic matter, water infiltration and water-holding capacity. However, shaded coffee farms have a constant supply of organic materials from coffee and shade-tree litter and so additional organic matter is not desperately needed. In both conventional and organic coffee production, part of the nitrogen needed can be provided by nitrogen-fixing shade trees.

Coffee plants need the major nutrients nitrogen (N), phosphorus (P) and potassium (K) as well as minor nutrients. The amount of fertilization required depends on soil quality and how much coffee is produced, in other words, the quantity of nutrients removed each year as coffee beans. Roughly one-third of the nutrients removed as coffee berries can be returned to the farm by carefully recycling the coffee pulp, the nutrient-rich outer layer of the coffee fruit. In Nicaragua, this can be done relatively easily because coffee is usually pulped on the farms rather than transporting the berries away to be processed. When pulp is recycled, as is typically done by organically certified producers in Nicaragua, 56-124 pounds/manzana (79-176 pounds of nitrogen per hectare) must be supplied from outside the coffee field to replace the nutrients removed with shaded coffee production of 776-3,105 pounds/manzana (1,100

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to 4,400 pounds/hectare). Thus, a minimum of 56 pounds of nitrogen per manzana (79 pounds/ hectare) need to be supplied annually in addition to recycling coffee pulp and using nitrogen-fixing shade trees.

In addition to coffee pulp, materials that organic coffee producers in Nicaragua commonly use as fertilizers are • Bocachi and compost: Bocachi is a type of compost made up of coffee pulp, household

organic waste, cattle or poultry manure, ashes, molasses, yeast, items from bean production and other organic waste. When the mix is simpler, for example containing only coffee pulp, cattle manure and bean stems, it is commonly called compost.

• Chicken manure and Biogreen: Chicken manure is rich in nutrients. Although small-scale chicken farming is widespread, few chicken farms have large quantities of manure for sale. Biogreen is poultry-manure-based organic fertilizer. It originates from the largest chicken farm in Nicaragua. All of the manure-based fertilizer produced by this farm is bought by organic coffee producers in Nicaragua. Use of Biogreen is approved by one of the two major organic certifying agencies in Nicaragua, Biolatina, but not approved by the other agency, OCIA.

In the case of nonorganic fair trade producers, the use of inorganic fertilizers and other agrochemicals is limited by poverty. Some fair trade certified producers use intensive conventional methods and have no plans of making a transition to organic farming because, in their opinion, that would lower their yields drastically and they do not believe that organic price premiums would compensate for the losses in yields. In 2007 and 2008, access to synthetic fertilizers by poor producers has been restricted due to mayor increases in fertilizer prices. Urea provides an illustrative example: urea prices increased steadily during 2002 and increases became more marked in 2008. The annual average price of urea in the world market went from US$309/ton in 2007 to US$517/ton in 2008. Prices reached US$770/ton in August 2008 before falling steadily during the remainder of the year (ICO 2009).

Marketing issues for organic and fair trade coffee Low-intensity small-scale coffee production also needs to be analyzed against the backdrop of recent changes in coffee markets. Between 1999 and 2002, coffee prices were below costs of production for most producers in Central America (production costs for smallholders is estimated at $70 per 100 pounds.) As explained earlier, the reasons for the downturn in prices include the collapse of the International Coffee Agreement (ICA) and its production quotas, increased productivity through high-yield coffee varieties, “technification” (higher intensity farming) and some mechanization of production, as well as improved roasting techniques, which have enabled roasters to use larger shares of cheaper-to-produce robusta coffee in their blends.

Figure 1. International prices for green coffee, 1990–2008

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Calender year

40.00

50.00

60.00

70.00

80.00

90.00

100.00

110.00

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Ave

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ann

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com

posi

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rice

for

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ffee

(US

$)

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However, beginning in 2004, international coffee prices began to increase almost as quickly has they had decreased during the crisis (Figure 1). According to ICO (2009), coffee markets have expanded at a healthy rate since the beginning of the decade: “The long-term outlook for coffee demand continues to be bright, mainly due to the growth of specialized niches in mature markets and the addition of new consumers in emerging markets.”

Fair trade originated in response to declining and volatile coffee prices. While fair trade does not require organic production, it does encourage producers “to work toward organic practices where socially and economically practical.” To be able to sell their coffee as fair trade certified, there is a pressure on producer organizations to produce organically (Valkila 2009). When fair trade coffee is not organically certified, there is a structural mismatch of supply and demand. As a result, certified producer organizations typically sell only a small percentage of their nonorganic coffee to fair trade markets. The supply and demand situation is completely different for fair trade organic markets. Demand for organic products is high and supply is limited because gaining organic certification is demanding and organic producers forego potential higher yields that can be achieved using inorganic fertilizers.

Prices for nonorganic fair trade have not changed dramatically in the face of sharp and prolonged increases in noncertified coffee.6 Currently, fair trade pays from 20% to 30% more than the market price in Nicaragua. But after paying cooperative fees, transport, taxes (in addition to waiting three months for the final payment for the coffee), economic incentives for participating in fair trade are currently limited, which may lead producers to sell their coffee outside of the cooperative. For conventional producers, incentive to sell at least part of their production through fair trade channels probably relates to credit and access to other inputs, such as cheaper fertilizer. For organic producers, who also sell according to fair-trade pricing guidelines, evidence suggests that fair trade certification has also had limited effect on the recent prices paid for organic coffee: without fair trade certification, many cooperatives in Nicaragua reported contracts of US$150-$170/100-pound sack in 2003-2008 (Valkila 2009).

Political-legal context State support for the coffee sector, Nicaragua’s most important agricultural sector, has been weak. Interventions have been limited to the introduction of an export tax, the establishment of bureaucratic requirements and the announcement of strict laws governing the creation and functioning of cooperatives. Soil testing laboratories are largely nonoperational. While minimum wages are set by the Ministry of Labor for agricultural work at roughly US$2.50 per day, there is relatively little oversight of working conditions or pay. In the wake of the coffee crisis, the banking sector has been highly reluctant to extend short-term credit to the coffee producers (long-term credit is basically unavailable). The design and provision of technical, business and financial services for small-scale coffee producers has been left to civil society and the private sector (such as local intermediaries). And, in general, government capacity to coordinate projects, which make up the thrust of Nicaraguan rural development initiatives, has been limited (Christopolos 2001).

Coffee cooperatives, in collaboration with civil society, have responded to the institutional vacuum by providing services typically delivered by the state, including technical assistance and training, infrastructure development and assistance in resolving land-tenure disputes. However, the offer of such services by cooperatives implies that costs are covered by deductions to the payment for green coffee, which may put them at a disadvantage in 6 The fair trade price = minimum price of US$125/100lb sack + US$ 10/sack “social premium.” However, when the New York coffee price reaches US$125 or more, the fair trade price = NY price + US$10/sack. (Note: the fair trade premium increased by $5/sack on June 1, 2007. NY price = daily closing price of the second position coffee 'C' futures contract at the NY Board of Trade.) For certified organic coffee an extra minimum differential of US$20 per sack is applied.

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competing with local intermediaries, or the costs are subsidized by projects, which implies discontinuity in the offer of key services and expenses in donor reporting and project acquisition.

At the international level, a major source of concern for Nicaraguan cooperatives that export certified organic coffee is uncertainty in regulatory frameworks for accreditation of certification agencies. Recently two issues have emerged, each with major implications for how cooperatives produce and market organic coffee. The first relates to group certification, which makes certification accessible to producers in the South by reducing the costs of annual inspection.7 In 2007 National Organic Program (NOP) of the U.S. Department of Agriculture (USDA) declared that it would now enforce the regulatory requirements that all members of a grower group (cooperative) be inspected, in response to noncompliance by a Mexican cooperative. (The rule has been existence since the NOP was launched in 2002, but not enforced). As a result, the practice of internal inspection, combined with a small percentage of third-party external inspections, would be evaluated as noncompliant with the USDA. In response to protests by NGOs and other actors in the organic sector, the USDA relinquished; however, the rule still exists and no formal declaration has been announced regarding its future enforcement.

The other issue relates to the use of poultry-manure-based fertilizers for the production of organic coffee. Until recently, the use of such fertilizers was approved by one of the two major organic-certification agencies in Nicaragua, Biolatina, but not approved by the other agency, OCIA. These fertilizers represent one of the few available economically viable options for providing nitrogen to organic coffee plantations. However, in 2008, Biolatina announced that it would no longer certify production practices that utilized poultry-manure based fertilizers. It is unclear the exact reason behind the decision, but most likely it is an attempt to respond to stricter organic regulation in Europe, which prohibits the use of animal material from livestock on factory farms. This has major implications for the organic coffee producers of Soppexcca, as no other source of nitrogen has been as efficient and effective as these fertilizers.

Interventions for promoting fair trade and organic coffee: case of Soppexcca Small-scale coffee producers have made the transition to organic farming with assistance from cooperatives and development projects. Interventions have helped producers become certified by providing training and financing, organizing producers in cooperatives, making low-cost credit available, and finding markets for organically certified products. Receiving organic certification is a three-year process that requires considerable commitment from producers long before coffee can be sold as certified. Without the support of cooperatives and development organizations, it would be practically impossible for small-scale coffee producers to acquire organic certification due to the high cost of certifying individual small producers in Nicaragua and the nonexistence of organic trade channels for small producers outside the cooperative membership. Fair trade certification is only available to cooperatives of small-scale producers. Therefore, for a small-scale producer to be fair trade and organically certified, a cooperative membership is mandatory.

Support for Soppexcca has come mainly from grants for the operation of technical assistance and credit programs and for infrastructure development (at the level of both cooperatives and households) for meeting and maintaining quality standards and certification requirements, such as quality, volume, traceability and input purchases. Buyers have encouraged the production of organic and fair trade coffee through long-term contracts, payment of price

7 Group certification allows organic certifiers to ensure compliance with organic standards based on a review of an internal control system and a randomly tested sample of members (20% of total membership) to validate compliance.

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premiums (at times more than the established base prices established by the Fair Trade Labeling Organization-FLO), and co-investments in infrastructure development. Between 2000 and 2009, Soppexcca and its members received considerable financial and technical support from various products, donors and coffee buyers, totaling US$2.1 million. Table 2 provides details on 13 of the larger-scale interventions received during this period. Most of this support was initiated prior to 2004, during the coffee crisis. Interventions have been critical for • Infrastructure development: subsidies for the purchase of a dry-mill coffee-processing

plant, construction/improvement of wet mills of individual members and base cooperatives, construction of Soppexcca office and warehouse and 11 base cooperative offices, equipping two cafés for the sale of prepared coffee

• Provision of technical assistance: all technical assistance provided by Soppexcca funded externally, including assistance for organic production

• Provision of credit: all long-term credit (three years) offered by Soppexcca to its members provided by donors and projects; funds for annual credit partially built up from subsidies and repaid funds from long-term credit

• Organizational strengthening: strategic planning and market analysis, provision of health and education services to Soppexcca members

• Quality and productivity enhancement: construction of cupping laboratory, soil and water analysis, training program for extension agents, construction of organic fertilizer production plant

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Table 2. Interventions for the development of Soppexcca, 2000–2008 Intervention

source Period Invested

(US$) Principal activities

Catholic Agency for Overseas Development

2002 45,000 • Purchase of the land and building for office for Soppexcca

Christian AID 2000–2002

25,000 • Funds for Soppexcca to establish credit program • Awareness-creation on gender issues and training on

cooperative organization and development Project ACRA-Solidaridad/ European Union

2002–2005

150,000 • Reactivation of coffee production • Improvement in wet-milling infrastructure • Training in production and postharvest treatment

Christian AID 2002 35,000 • Food relief for Soppexcca members • Uniforms and school supplies for children

Thanksgiving Coffee 2004 15,000 • Cupping lab and training in cupping techniques Lutheran World Relief/ (in 2009 assistance was funded via USAID-Acordar project)

2005–2009

500,000 • Assistance for improved quality and productivity • Production diversification (goats, cocoa) • Equipment for cupping lab • Equipment for two cafés (sale of prepared coffee) • Subsidies for the purchase of processing plant • Promotion (fairs, promotional material)

Development Cooperation Ireland

2005–2008

90,000 • Strategic plan, business plan, internal operations manual • Expansion of Soppexcca office (warehouse) • Training of baristas in coffee preparation • Subsidies for processing plant (land purchase)

Inter-American Foundation

2004–2006

180,000 • Equipment for Soppexcca office • Study on U.S. specialty coffee market • Training in cupping techniques • Purchase of a truck for transport of coffee

ECODES/European Union/Cafenica

2003–2005

30,000 • Improvements of wet-milling infrastructure • Trading in quality enhancement for green coffee

Christian AID/ European Union

2007–2009

700,000 • Construction of 11 offices for base cooperatives • Training in cooperative development processes • Construction of ecological wet mills • Production diversification (cocoa, jams) • Subsidies for soil and water analysis • Construction of processing plant for organic compost • Purchase of truck • Subsidies for technical assistance provision

CATIE/ Norwegian Ministry of Foreign Affairs

2007–2009

35,000 • Training in disease/pest management • Value chain assessment • Assistance for the decentralization of administration

Coffee Kids 2005–2009

65,000 • Assistance in organizational strengthening • Training for youth in cooperative development

MAGFOR-AECID/European Union

2007–2009

250, 000 • Assistance for the improving of coffee quality • Training of cuppers and baristas

A theory of change for Soppexcca and its members Based on our review of the context, we identify the following strategic goals that stakeholders seek to achieve: • Soppexcca: increased economic viability over the mid-term to long-term through 1)

increased efficiency, 2) new income sources and 3) reduced dependency on

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development projects for key operations (for example, provision of credit and technical assistance)

• Civil society (including LWR): reduced poverty among small-scale coffee producers in Nicaragua, increased economic viability of Soppexcca (as a key elements for small-scale members to access essential services and higher-value coffee markets)

Expected results: inputs, outputs, outcomes and impacts: • Figure 2 presents the inputs and outputs and expected outcomes and impacts of

participation in organic and fair trade certified value chains for Soppexcca, taking into account interventions to build Soppexcca’s asset endowments and service offer since 2002, as well as changes in the overall marketing context for coffee value chains

• Figure 3 presents the impacts and outcomes and expected outputs and impacts of participation in organic and fair trade certified value chains for producers, taking into account Soppexcca-provided services, services provided by other actors and the overall context for production and market of coffee

Figure 2. Impacts, outcomes and outputs of participation in organic and fair trade certified value chains for Soppexcca

Ability to assign attributionHigh

Medium

Low

Impacts• Increased

business viability

• Environment

Inputs • Subsidies• Grants• Technical

assistance• Credit

Outputs • Service

officer of technical assistance and credit

• Access to higher-value markets

• Improved resource usage

Outcomes Changes in:• Asset

endowments • Income flows

Short run Long run

Other factors influencing outcome and impacts

• Certification standards• Political-legal framework• Marketing environment• Third-party interventions

Strategies to achieve the results:

Strategies correspond to the inputs and activities carried out by projects and grants between Soppexcca and development organizations (see Table 2 for details). In some cases, inputs and activities have been directed at Soppexcca for upgrading its capacities and service offer. In other cases, inputs and activities have been directed at Soppexcca-affiliated producers (either directly by development organizations or through Soppexcca). Based on inputs and activities carried out to date by various development organizations since 2000, the following strategies can be deduced.

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Soppexcca: • Access to short-term credit for obtaining raw material from producers • Expanded technical assistance for increased volume and enhanced quality • Improved management capacities • Improved processing capacities

Soppexcca-affiliated producers: • Improved physical capital (such as coffee wet mills) • Improved human capital (low-input production techniques) • Improved natural capital (long-term credit for land purchase and coffee plantation

renovation) Figure 3. Impacts, outcomes and outputs of participation in organic and fair trade certified value chains for Soppexcca-affiliated producers

Impacts• Improved well-

being among Soppexcca-affiliated producers

Inputs • Training, credit,

and production inputs from Soppexcca

• Access to certification systems

• Access to fair trade and organic markets

• Training, credit, and production inputs from Soppexcca

Outputs • Increased

capacities and skills

• Increased access to credit

• Increased access to production inputs

• Higher relative coffee prices

Outcomes Changes in:• Asset

endowments • Resilience• Income

flows

Short run Long run

Other factors influencing outcome and impacts

• Certification standards• Political-legal framework• Marketing environment• Third-party interventions

Ability to assign attributionHigh

Medium

Low

Assumptions about how change occurs:

The following are some assumptions (based on the strategies deduced above) regarding how outputs may have led to outcomes that in turn contributed to impacts:

Soppexcca: • Competition from coffee buyers other than Soppexcca does not significantly reduce

Soppexcca’s ability to obtain raw material • A major percentage of its nonorganic production is sold as fair trade • Soppexcca obtains the grants and projects required for maintaining technical staff

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• There are not major changes in organic standards that would reduce its access to raw material or significantly change its costs of operations

Soppexcca-affiliated producers: • Producers are willing and able to invest in producing coffee according to organic

standards • Nonorganic producers are willing and able to sell the majority of their coffee to

Soppexcca • Producers have a minimum level of assets necessary to invest and take risks for

generating increased income and building asset endowments External factors that are likely to influence achieving the results include:

• Inputs accessible for increasing productivity • Prices for nonorganic coffee • Climate and pest conditions • Organic and fair trade standards (and their interpretation my local certification

agencies) 4 Results: enterprise-level analysis This section presents the current endowment of assets (natural, human, social, physical and financial) held by Soppexcca, changes in these assets and overall economic viability since the early 2000s, as well as insights into the potential causes of these changes. Attribution focuses on understanding the extent to which identified changes were caused by Soppexcca’s participation in value chains for organic and fair trade standard coffee or by the larger context in which it operates.

Natural capital Soppexcca does not produce coffee. Its natural capital endowment is, in fact, capital derived from that of its members’ total area under coffee production, their productivity and their efforts to maintain (increase) quality. Table 3 presents data on area under coffee production among the sample 281 Soppexcca members, covering a period of seven years. Total area has increased significantly in this time, from 596 to 850 manzanas (mz).8 Increases have been relatively greater for nonorganic producers than for organic producers. Between 2002 and 2005, increases in area were largely due to an expanded membership base, as households joined Soppexcca in search of better marketing opportunities for their coffee. Since 2005 however, increases in area have largely been due to expanded area by households. The purchase of land by Soppexcca members (especially female members) was enabled by long-term credit provided to Soppexcca (which was provided to Soppexcca by projects and development organizations committed to social and environmental responsibility).

Total production volumes among the sampled producers have nearly doubled during the past seven years: from nearly 600,000 pounds of green coffee in 2002–2003 to more than 1,2 million in 2008–2009. Average productivity for organic producers is roughly 40% of the average productivity for nonorganic producers during the period. Evidence from household-level data collection suggests that increases in productivity can be attributed to increased income from higher coffee prices (especially in the case of nonorganic producers) and to

8 Manzana is the unit of land measure commonly used in Central America, including Nicaragua: 1 mz = 1.42 ha.

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participation in a fair trade certified cooperative, as a number of Soppexcca-affiliated households received short-term credit for the purchase of fertilizer and long-term credit for the renovation of coffee plantations, which was derived from fair-trade lending organizations or from civil society (Christian Aid and LWR).

Insight into improvements in average coffee quality delivered to Soppexcca by its members can be derived from 1) changes in production practices reported by producers and 2) number of bags of coffee rejected by Soppexcca upon delivery to the Soppexcca warehouse. Nearly all of the interviewed producers, when asked about the steps they had taken to increase the quality of their coffee, indicated better harvesting techniques (selection of only ripe berries) and better wet-milling techniques (construction of wet mills, increased attention to fermentation and drying processes). Coffee that does not meet Soppexcca’s quality standards is typically sold in the local market in Jinotega or Matagalpa (which is then sold to major coffee exporters). Approximately 15% of the sample producers reported to have had their coffee rejected by Soppexcca upon delivery to the warehouse at least once during the past five years, generally between one and five bags. The major reason for rejection was mold, which was usually caused by either improper drying (following met milling) or by hazards incurred in transport between the farm and Soppexcca’s warehouse (for example, coffee bags placed on top of buses and exposed to rain).

Table 3. Total coffee production area and production of Soppexcca members, 2008–2009 to 2002–2003 (n=281)

2008–2009 2007–2008 2006–2007 2005–2006 2004–2005 2003–2004 2002–2003 Area (manzanas) Non-organic 689 662 591 538 524 494 462 Organic 161 163 160 144 147 144 134 Total 850 824 751 682 671 638 596 Production (100 pounds green coffee) Non-organic 11,044 17,009 9,843 9,907 6,809 6,176 5,241 Organic 1,143 1,855 1,043 1,686 929 1,033 727 Total 12,187 18,864 10,886 11,593 7,738 7,208 5,968 Average productivity All coffee 14.34 22.89 14.50 17.00 11.54 11.30 10.02 Non-organic 16.03 16.63 16.66 18.41 12.99 12.49 11.34 Organic 7.10 11.38 6.52 11.71 6.32 7.17 5.42

Human capital One indicator of Soppexcca’s current endowment of human capital is its ability to attract and retain competent administrative staff. Here evidence is mixed. On one hand, Soppexcca has counted on the services of a professional, full-time manager who is highly regarded by Soppexcca members, civil society and buyers. The selection and payment of the manager during the first years of operation were covered by Max Havelaar—a fair trade promotion organization based in the Netherlands. The manager is currently employed (and funded) by Soppexcca. She is responsible for day-to-day operations, including decisions on debt restructuring, emergency credit for producers and sale of coffee; she is supported by a full-time professional administrative staff of eight persons. She is also perceived by the membership base as being responsible for the expansion of Soppexcca’s service offer (and related contacts with development organizations), the close ties with long-term European coffee buyers and the expanded ties with U.S. coffee buyers. In addition, the lead extensionist, who has also been with Soppexcca for more than five years, is also highly

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regarded by Soppexcca members. He played a key role in the development of technologies for organic production and in supporting organic and otherwise low-input production among the membership base. Several Soppexcca members credit him with enabling them to make the conversion to organic production during the coffee crisis.

On the other hand, evidence from key informant interviews and household interviews suggests that mid-level positions, such as extensionists, accountants and credit managers, are not adequately funded and that staff turnover is relatively high. For example, both the accountant and credit manager positions have experienced turnover the past few years. Evidence suggests that the extension staff of eight persons has faced considerable difficulty in meeting its objectives. Each extensionist is assigned to two or three base cooperatives, each of which averages 43 members. However, there is considerable variation among the base cooperatives, with some made up of relatively wealthy producers who use intensive production methods and others almost entirely made up of very poor producers with extremely limited access to inputs (generally also being the cooperatives to which organic producers belong). Based on interviews with base cooperative leaders, extensionists are overburdened and struggle to comply with reporting requirements and their extension duties.9 Unlike the administrative staff, extension staff is fully funded by projects. Currently, two projects fund most extensionists: a Christian Aid/European Union-project and a LWR/USAID-project (ACORDAR), both of which expire in 2010–2011.10

Another indicator of Soppexcca’s endowment of human capital is the ability of cooperative members to be actively involved in the administration via participation in the general assembly, board of directors (which is elected by the general assembly for a period of two years), and other committees (administration, certification). However, based on interviews with members of the board of directors and the financial oversight committee, elected cooperative leaders are not sufficiently prepared for their positions. For example, one of three members of the financial oversight committee reported that during the first two years of his three-year term, he was unable to understand basic financial statements. Even for members with the capacity to understand financial statements, up-to-date financial statements were simply unavailable to the board of directors or financial oversight committees at least since 2007.

To be sure, there has been considerable accumulation of human capital among long-term Soppexcca staff relative to coffee production, especially organic coffee. When production began in the early part of this decade, Soppexcca staff knew little about organic production, by mainly poor producers, or related certification processes. These capacities were built up over several years through a combination of outside technical assistance and trial and error. In the initial years of organic production, for instance, Soppexcca promoted the production of compost to supply nutrients to organic coffee plantations. However, after two to three years, it was clear that it was not possible for the majority of producers to produce sufficient compost to supply the nutrient needs of organic coffee (in part because of the absence of cow manure in coffee-producing zones). In 2006, Soppexcca began to facilitate access to Biogreen, which is a chicken-based-manure fertilizer that supplies more concentrated doses of nitrogen.

Other important advances in human capital include development of skills for the production of cocoa (CATIE project), development of capacities for cupping coffee (determination of quality characteristics), preparation of coffee drinks (for example, cappuccino) and

9 In addition, Soppexcca staff must confront the violence and crime common in part of rural Nicaragua. In October 2009, the Soppexcca extensionist assigned to three base cooperatives in El Cua was murdered in an attempted robbery while leaving a Soppexcca meeting.. 10 An extension through 2012–2013 was under negotiation at the time this report was prepared.

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development of capacities for cocoa production. In all cases, costs of specialized training were subsidized by projects.

Social capital Soppexcca’s endowment of social capital can be evaluated in terms of 1) decision-making processes and internal organization, 2) the links between Soppexcca and its members and 3) Soppexcca’s links with its buyers.

In many ways, Soppexcca stands out for achieving a high degree of consolidation in its internal decision-making processes and the overall strength of its internal organization in a relatively short period of time. For example, decisions in credit are taken based on a ranking of credit worthiness (with flexibility for addressing cases of emergency), and since 2008 an evaluation system was put into effect for evaluating the performance of extensionists. Members elected from the base cooperatives form part of formal committees, such as the credit committee, which can have a major influence on the provision of services. However, evidence collected through semistructured interviews suggests that further consolidation is needed. Among some of the potential limitations to current and future growth are

• Restricted internal coordination: Two of the most important units within Soppexcca, technical assistance and credit, operate separate from each other. Technical assistance gave recommendations for investments in coffee production without taking into account credit decisions, and credit based its decisions to provide credit only on yield projection and credit histories. Coordination between the two could allow for more targeted (and efficient) use of limited credit resources.

• Limited ability to monitor and evaluate business strategy: Interviews with members of the board of directors detected frustration that basic financial documents (with up-to-date information) were not available with sufficient detail to understand the financial status of Soppexcca.

• Top-down decision making: Major decisions, such as investment of Soppexcca funds in the purchase of a dry coffee-processing plant, were made without an objective third-party assessment of the related costs and benefits. The agenda for board meetings is set by the administration, and in general, board members tend to defer to the administration for major decisions. It can be argued that in the initial stage of Soppexcca’s development a more top-down decision-making process was positive; however, as Soppexcca further consolidates its business, a more participatory process may provide increased stability (especially in the event of a change the general manager) and a greater sense of ownership among base cooperatives.

• Absence of criteria for the selection of base cooperatives: During the early 2000s, base cooperatives were allowed to join if they were willing to sell their coffee to Soppexcca. Criteria did not exist regarding productivity, existing capacities or affiliations with other buyers or cooperatives. In some cases, Soppexcca (often in collaboration with civil society) has had to invest considerable resources to upgrade the capacities of members of the base cooperatives. The rapid growth of Soppexcca during the coffee crisis also implied that funds available for short- and long-term credit were stretched over a greater number of producers (thus, reducing the average amount of credit available per member). Since 2005, Soppexcca has not been willing to accept additional base cooperatives for these reasons.

Since its formation in the early 2000s, Soppexcca has had considerable success in building strong links with its membership base. This is due in large part to 1) the coffee crisis, which pushed small-scale producers away from traditional supply chains to Soppexcca, 2) its rebirth out of the ashes of its predecessor organization and 3) its extensive offer of services, which includes short- and long-term credit and technical assistance.

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The coffee crisis played an important role in building up Soppexcca’s membership base. In response to depressed prices during the crisis, Soppexcca’s membership expanded rapidly, as did its export volumes. Total membership increased from 68 members in 2000 to 700 in 2008 (Table 4). Membership growth (and related exports) was most rapid during the first half part of this decade as coffee producers turned to Soppexcca for access to higher prices and credit. (Soppexcca’s ability to offer short- and long-term credit has increased steadily since 2000—for more details see discussion on financial capital). Growth since 2005 has been markedly slower: average annual increase in green coffee purchased by Soppexcca from its members was 51% between 2001 and 2004 and 11% between 2005 and 2008. While the overall number of organic producers has not changed dramatically over the six years (an estimated 37 producers withdrew from organic certification and a slightly smaller number have entered into organic certification), organic producers as a percentage of total Soppexcca members have fallen dramatically: from a high of 25% in 2003 to a low of 12% in 2008.

Table 4. Soppexcca membership and coffee exports, 2000–2008 Producer type 2000 2001 2002 2003 2004 2005 2006 2007 2008

Conventional coffee producers Members 68 150 246 261 349 551 549 559 614 Coffee exported (100lb sacks)

1,200 2,500 2,724 3,613 5,516 4,553 5,335 4,382 7,115

Organic coffee producers* Members 0 0 4 89 101 99 101 91 86 Coffee exported** 0 0 481 638 973 803 941 773 1,256

* Calculated from annual internal inspection reports prepared by Soppexcca for Biolatina **Estimated at 15% of total production, as no data was available from Soppexcca on organic exports

Strong bonds with some members were also forged out of the crisis from which Soppexcca emerged. In 1997, the coffee cooperative Jiprocoop,11 to which many current Soppexcca members had belonged, collapsed under the weight of corruption and debt. After five years of exporting fair trade coffee to Europe, Jiprocoop formally declared that it would not be able to meet its contractual obligations for the delivery of green coffee— the first such case in the history of fair trade coffee (Denaux 2008). In 1996, Jiprocoop received US$640,000 in prefinancing from six European buyers (approximately 60 percent of the value of the contracts).12 However, poor oversight of the cooperative’s administration provided conditions for theft by the cooperative’s professional manager and the Export Committee (Denaux 2008). Having lost the prefinancing funds to theft, Jiprocoop was unable to purchase coffee from its members in 1997 and unable to repay the prefinancing. By 1999, Jiprocoop’s debt, including interest, to its buyers had reached US$722,991: Jiprocoop was declared insolvent in 1997. According to Denaux (2008), default on prefinancing on such a scale had never occurred in the history of fair trade, putting at risk the participation of various international buyers in fair trade markets.

Following the insolvency of Jiprocoop, Soppexcca was organized as a corporation rather than a cooperative, based on lack of confidence in governance structures by both members and international buyers13. The majority of shares in the newly firmed corporation were held

11 Jiprocoop is a Spanish acronym for Empresa Cooperativa de Productos Agropecuarios de Jinotega, R.L. 12 Prefinancing is critical for cooperatives to ensure the delivery of green coffee from their members, given the extended period of time between coffee delivery and final payment, which typically lasts from three to five months. The offer of prefinancing by coffee buyers is common practice in fair trade buyer-seller relationships. The only collateral for the loans is the contact itself, where the cooperative guarantees a specific volume to be delivered. Upon receipt of the coffee in port-of-entry, buyers send payment minus the amount of prefinancing. 13 Soppexcca legally existed as a corporation between 1997 and 2008. This organizational form was preferred by the debt-holding coffee buyers, reflecting the overall lack of confidence in Soppexcca’s ability to repay the debt

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by five of the six debt-holding coffee buyers. (One coffee buyer decided not to continue collaboration with Soppexcca to avoid future risk exposure from coffee cooperatives.) The company was to be administered by a professional manager appointed by the Netherlands-based alternative trade organization (ATO) Max Havelaar, in coordination with the buyer-owners (Denaux 2008). The buyers agreed to freeze all interest on the debt and continue to buy coffee from Soppexcca, including the provision of prefinancing. Soppexcca and members agreed to repay the debt based on the following formula: 50% of the difference between the New York price for Nicaraguan coffee and the floor price for fair trade divided in two equal parts, with half going to debt repayment and half going to Soppexcca for the purchase of coffee from its members. Debt repayment would be divided among the five buyers according to the percentage of their loss. The other half of the difference between the New York and fair trade price was offered to Soppexcca members, thus ensuring that Soppexcca could compete with local traders for members’ coffee.

By the early 2000s, Soppexcca‘s long-term viability had improved dramatically in response to 1) multiple interventions by development agencies, projects and coffee buyers and 2) increased membership. Soppexcca gradually repaid its debt obligations and expanded relations with coffee buyers in Europe and the United States. It maintains direct business relations with various U.S. and European buyers. In several cases, relations have endured for more than 10 years. For example, Gepa, Mitka and CTM purchased coffee from Jiprocoop, suffered major losses in 1997 when Jiprocoop defaulted on their loan14 and have supported Soppexcca with the debt restructuring and purchase of their coffee since 1997. Soppexcca has also diversified its buyers in expanding markets for specialty coffee, including the United States and Ireland. No major problems were reported by Soppexcca regarding their buyer relations, reflecting a relatively high demand for Soppexcca’s coffee and a competent professional management staff. In 2008, having repaid it debt to its buyers, Soppexcca reorganized as a cooperative. In addition to allowing for direct ownership by coffee grower members, it allowed for significantly reduced tax contributions.

Soppexcca’s links with its membership base have also benefited from a strong service offer. Soppexcca offers five basic services to its members (Table 5). The nature of these services has not changed over the years. Prior to 2008, dry milling was contracted out at $10/100-pound sack. With Soppexcca’s recent acquisition of a dry processing plant, the service is now carried out in-house, but the cost has not changed. Fees for administration and marketing are low and no fee is charged for technical assistance.15 As reported in the household-level interviews, for most affiliated households Soppexcca is the only source of technical assistance and training as related to coffee. Certification costs are generally borne by members; however, in some years organic certification was subsidized by projects.

For most Soppexcca members, credit is the key factor in determining their commitment to the cooperative. With credit, members tend to deliver at least as much coffee as required to cover their debt obligations; without credit, the cooperative tends to be viewed as just another coffee buyer, which may offer slightly higher prices but which also pays three to four months after delivery and demands a relatively high level of quality. Soppexcca estimates that 70% of its producers currently access short-term (annual) credit. It is the only source of long-term credit for smallholder coffee producers identified in this assessment. Since 2002,

(Denaux 2008). In 2008, having repaid all the dept to the coffee buyers, Soppexcca reestablished itself as a cooperative. 14 Financial losses resulting from Jiprocoop’s default on prefinancing loans in 1997 were Gepa: US$19,900; Mitka: US$10,210; and CTM: US$9,370. Between 1999 and 2008, Soppexcca members fully repaid these debts. 15 Current fees for administration are low ($2 per bag), which likely does not cover Soppexcca’s operating costs. Earnings from interest paid on credit may contribute to covering operating costs, but this too is small and unlikely to provide much support for covering costs. Detailed information was not available on Soppexcca’s costs or income. However, income is probably also derived by reducing the price paid to producers.

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the funds for short-credit provision have grown steadily due to donor and project subsidies and reinvestment of interested earned on credit (for details, see “Financial Capital” section).

Table 5. Services offered by Soppexcca and related costs Services Cost % of members that

utilized the service in 2008–2009

Dry coffee milling $10 per 100-pound sack (export ready) 100% Credit 16% annual for short-term loans (1 year)

14% annual for long-term loans (3 years) 70%

Certification fair trade $.50 per 100-pound sack green coffee delivered 100% Certification organic Ranges from 0 to $3.25 per 100-pound sack of

green coffee, according to number of producers and acres certified and subsidies

20%

Administration and marketing $2 per 100-pound sack of green coffee 100% Technical assistance Free-of-charge (subsidized by NGOs and projects) 100%

Another service offered by Soppexcca to its members (and their communities) is the promotion of education and heath. Investments include construction of schools, subsidies for school supplies, scholarships and health campaigns (Table 6). Funding is derived from the “social premium” of fair trade and projects funded by NGOs, direct donations by individual and communities, international coffee buyers and Soppexcca members. Table 6. Education and health investments facilitated by Soppexcca, 2007–2009

Investment Investment (US$)

Funding sources

Construction of primary school Las Hermanas

15,000 • Fair trade social premiums • US coffee buyer (“Las Hermanas” project)

Construction of primary school Solidaridad 10,000 • Fair trade social premiums • Donations from Heidelberg, Germany

Construction of primary school La Amistad 8,000 • Fair trade social premiums • Cup of Education (United States)

Provision of school supplies 783,000*

• Lutheran World Relief, with support from social premiums for distribution among membership base

25 scholarships (secondary school) 15,000 • Info Buro, Germany Campaign for prevention of cervical cancer N.A. • Grounds for Help (United States)

* Data provided for 2009–2010

Physical capital Overall, changes in the endowments of physical capital (infrastructure and equipment) have been significant. These changes were made principally because of Soppexcca’s relations with development organizations and, in a few cases, with international coffee buyers. In all cases, Soppexcca’s commitment to social and environmental goals has been key to its ability to forge bonds with development organizations and buyers. Major additions to its endowment of physical capital include:

• Soppexcca office (2001): Office in Jinotega was built for administrative and technical staff and for coffee storage—constructed with subsidies from two projects.

• Eleven base-cooperative offices (2008): The office are used for meetings and training and collection/storage of coffee during the harvest, thereby reducing risk of theft (if bags are stored at home)—constructed with funds from a European Union-supported project.

• Dry coffee-processing plant (2009): Prior to the purchase of the plant, Soppexcca rented services for dry coffee processing. The plant, which cost more than US$600,000, was considered necessary to 1) ensure access to processing facilities

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during the harvest season, 2) reduce risks with third party processing (for example, mixing of coffees) and 3) generate income (reducing pressure to finance operations through deductions from farm-gate prices)—constructed with own funds, subsidies and loans.

• Cupping lab (2005): The cupping lab is used for determining the quality of coffee before shipment to international buyers—constructed with funds from a LWR/USAID project and implemented by a U.S. coffee buyer (Thanksgiving Coffee).

• Full-service cafés (2007): The cafés, one located in Soppexcca’s office and the other at the central plaza in Jinotega, sell coffee drinks and roasted, packaged coffee. Coffee preparation equipment was subsidized by European Union and LWR-funded projects.

• Chicken-manure-fertilizer production facility (2008): The facility produces chicken-manure fertilizer—constructed with funds from a Christian Aid/European Union-funded project.

• Other equipment (2003–2008): The equipment includes trucks, computers and office equipment—all funded by projects.

In some cases, cash contributions for infrastructure development were made by Soppexcca (the purchase of dry coffee-processing plant). These contributions were derived mainly from interest on credit, sale of coffee (reductions from the export price) and the social premiums from fair trade. In general, Soppexcca has limited ability to raise capital from its members, and outside investments are not permitted under the cooperative organizational form. As of 2009, the fertilizer plant has been out of operation due to changes by Biolatina regarding the use of chicken-manure fertilizer for organic coffee production.

Financial capital In general terms, Soppexcca, like many cooperatives that are owned by the rural poor (Donovan, Stoian and Poole 2008), faces major challenges to increase its endowment of financial capital. Soppexcca has not been able to accumulate any retained earnings, in part because of its cooperative structure (which prohibits the accumulation of capital) and because of its overall weak ability to generate earnings from the sale of coffee. Any earnings at the end of the year are injected directly into the short-term credit program. Since its beginnings, Soppexcca has faced one major challenge after another: during is first five years, it was faced with the coffee crisis (and the resulting need to redistribute as much as possible of its earning to its members) and the need to repay the US$640,000 debt left behind by its predecessor organization. In more recent years, Soppexcca has faced a major increase in the price for conventional coffee (and increased competition from local buyers), and thus is forced to expand its credit program as much as possible and return as much as possible of the final coffee selling price to its members (both favorable credit options and final selling prices are key for obtaining access to members coffee).

Information on net income was not available. However, gross income from coffee sales increased between 2004 and 2008 in response to increased export volumes and higher coffee prices (Table 7). In 2007–2008 income reached its highest level, at US$1.4 million, thanks in large part to increased production due to favorable growing conditions. Payments received by members are roughly 80% of total income received from coffee sales. No annual dividends were paid out to members during this period.

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Table 7. Distribution of income from export of coffee by Soppexcca, 2004–2008 2004 2005 2006 2007 2008

Volume (100-lb sack, export ready)

10,420 8,034 9,420 7,735 12,800

1,000 US$ 1,038 1,004 1,045 1,164 1,426

Total coffee sales

Unit price (US$) 996 1,250 1,109 1,505 1,114Payments to producers 1,000 US$ 819 836 847 1,006 1,157Payments for Soppexcca administration

1,000 US$ 21 16 19 16 26

Payments for other expenses

1,000 US$ 198 153 179 150 243

Given the essentiality of short-term credit for Soppexcca to obtain coffee from its members, the capitalization of its short-term credit funds is an important indicator of financial capital. Long-term credit is also critical, as it allows coffee producers to renovate their plantations (a three-year process during which coffee plants are out of full production) and expand their coffee holdings. Soppexcca is among a select few coffee cooperatives in Nicaragua that offers long-term credit to its members. Between 2002 and 2008, total credit offered by Soppexcca to its members increased markedly. Table 8 provides data on total credit offered to the 11 sampled base cooperatives. Annual fluctuations, which are often significant, are due to 1) nonpayment of short-term loans (nonpayment can reach as high as 40% of the total credit offered, depending on the success of the harvest and coffee prices) and provision of long-term credit (long-term credit takes funds out of circulation for three-plus years). The gradual increase in credit beginning in 2005 is mainly due to the injection of new credit funds by projects and donors.

Table 8. Credit distribution by Soppexcca to sampled base cooperatives, 2002–2008 Credit distributed (US$) Base cooperative

2002 2003 2004 2005 2006 2007 2008 Bernardino Días Ochoa 1,350 3,833 6,205 18,773 14,932 12,853 21,503Ernesto Acuña 78 44,184 111,858 39,132 125,384 91,381 111,650Feliciano Hernández 0 12,449 9,798 10,814 22,587 18,187 15,854Jesús Rivera 0 32,473 18,464 20,970 33,371 35,074 72,487Juan Fernández 788 40,701 3,707 6,093 7,983 14,666 19,251La Unión 0 14,694 5,436 9,236 10,737 16,000 24,503La Unidad 0 23,657 6,159 15,740 12,008 33,067 35,577Osman Martinez 0 22,057 33,316 25,767 23,305 21,672 32,529Julio Hernández 0 1,058 1,725 7,591 5,975 21,056 19,483El Esfuerzo 0 677 1,981 2,536 5,066 5,648 9,817Los Alpes 0 9,865 2,967 3,978 8,547 12,652 47,412Total credit distributed 2,216 205,646 201,617 160,631 269,895 299,897 461,324Credit distributed /member 9 788 578 292 492 536 751

The total amount of credit offered to all Soppexcca-affiliated base cooperatives in 2008 was US$898,939, of which 56% was for short-term loans (one year) and the remainder for long-term loans (three-plus years). Soppexcca’s own funds provide for most of the credit extended in 2008 (Table 9). Some of these funds were derived from interest earnings (50% of earnings are reinvested in the credit program and 50% is used to cover administrative expenses) and previous donor-support for credit program. Contributions from projects and NGOs have played a key role in building up Soppexcca’s ability to offer credit: in 2008, 25% of total Soppexcca’s funding for short-term credit offer was provided by a single project and low-interest loan, while 27% of total funding for Soppexcca’s long-term credit offer was provided by two projects and one low-interest loan.

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Table 9. Soppexcca’s short- and long-term credit sources, 2008 Source of credit funds Amount (US$)

Short-term credit Own funds* 379,237 AECID: donation by European Union project from 2007 to 2009 71,140 Vientos de Paz: Annual loan, with preference for women 46,881 CATIE/Innovations project: Donation for upgrades in producer infrastructure 10,669 Subtotal 507,927 Long-term credit Own funds* 286,908 Root Capital: Annual loan, with preference for women, youth, organic producers 59,067 Inter-American Foundation: donation for construction of wet coffee mill by Soppexcca members 36,756 Christian Aid: Donation for coffee plantation renovation and purchase of livestock 8,283 Subtotal 391,014 Total 898,941

* Built up between 2004 and 2009 with current and bequeathed credit funds provided by projects and retained earnings (mainly derived from interest earned on short-term credit)

Business viability A strong case can be made that since the early part of this decade Soppexcca has dramatically improved its long-term viability in value chains for organic and fair trade certified coffee. Major contributing factors include long-term trading relationships with international coffee buyers, competent management and strategic planning (for example, repayment of Jiprocoop-related debt over six years, maintenance of competent professional staff and expansion of trust relations with international coffee buyers), and relatively major investments in building social and human capital. Endowments of social and human capitals are likely to remain relatively strong in the midterm to long term. Major limitations of human capital include limited capacities and longevity of second-tier administrative and technical staff. The fact that technical assistance is still 100% financed by projects is a major concern for Soppexcca.

Regarding changes in natural capital endowments, it is unclear how the leveling off of coffee deliveries by Soppexcca’s members will effect business viability: Soppexcca receives relatively little income from each bag of coffee sold (this may change with the addition of the dry processing plant, which may will allow for income generation) and it may have already reached a critical mass of volume to satisfy its current buyer portfolio. On the other hand, low productivity remains a major issue for Soppexcca and its members, and attempts to increase productivity through short- and long-term credit has had limited impacts.

Perhaps the clearest threat to Soppexcca’s business viability is its relatively low level of financial capital. Among Soppexcca’s major income sources are the US$2 charge per 100-pound sack of coffee exported and interest from credit. External subsidies remain critical for the offer of technical and credit services. When fees and external subsidies are not available to cover costs, Soppexcca has to take income from the sale of coffee to finance its operations. To the extent that it provides services that most private sector agents in Nicaragua are unable or willing to provide (technical assistance, long-term credit, social services), this puts Soppexcca at a disadvantage to other coffee buyers, which can now offer prices similar to those offered by Soppexcca, full payment upon delivery of coffee and, in some cases, pick up of coffee at the farm gate.

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5 Results: household-level analysis

This section presents existing endowments of assets (natural, human, social, physical and financial) among Soppexcca-affiliated households, as well as changes in these assets since 2004. When possible, we provide insights into the potential causes of these changes.

Natural capital In 2008–2009, the average total area under coffee production was 2.89 manzanas (2.0 hectares) for organic producers, 3.21 manzanas (2.26 hectares) for nonorganic producers and 4.28 manzanas (3.0 hectares) for ex-organic producers. Between 2008–2009 and 2004–2005, the average area increased for all three types of producers (Table 10). The largest increase in average total area under coffee production of 6.34% was registered by nonorganic producers.

Table 10. Average total area under coffee production, by producer type, 2008–2009 to 2004–2005

Area under coffee production (mz)

2008–2009 2007–2008 2006–2007 2005–2006 2004–2005 Average % increase

Nonorganic (n=185) 3.21 2.97 2.68 2.51 2.52 6.34Organic (n=71) 2.89 2.84 2.70 2.44 2.47 4.08Ex-organic (n=40) 4.28 4.16 3.67 3.57 3.51 5.22

Expansion of area under coffee production was made possible either through the purchase of land or the substitution of other products for coffee, usually basic grains, forest or previously unused land. In total, coffee acreage expanded by 234 manzanas (165 hectares). The average expansion was 1.6 manzanas per household (1.1 hectare). Expansion implies two basic types of costs: direct costs (purchase of seeds, hiring of labor for clearing and planting) and opportunity costs—at least two years without income (unless land had preexisting coffee plants). Two major contributing factors were identified for the expansion of new area under coffee production: increased income from the sale of coffee and credit from Soppexcca, mainly in the form of long-term loans with a three-year grace period (Table 11).

Table 11. Principal factors enabling coffee area expansion, as reported by members Principal factor enabling expansion

of coffee area Frequency

Sale coffee 64Credit Soppexcca 65Credit others 3Off-farm work 6Sale of other products 4Other 2Total 144

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On average, nonorganic and ex-organic producers in Soppexcca produce around 17 bags of parchment coffee per manzana (25 bags/hectare), which is equivalent to roughly 8.5 bags of green coffee per manzana (12.1 bags/hectare) (Table 12). The average productivity of organic producers is significantly less, at roughly 8.23 bags of parchment coffee per manzana (11.7 bags/hectare), which is equivalent to 4.1 bags of green coffee per manzana (5.9 bags/hectare). Table 12. Average production per manzana, by producer type, 2008–2009 to 2004–2005

Coffee production (100 lbs bags parchment coffee) per manzana (mz)

2008–2009 2007–2008 2006–2007 2005–2006 2004–2005

Average % increase

2008–2009 to 2004–2005

Nonorganic (n=185) 17.5 26.5 19.3 18.7 19.0 1.36Organic (n=71) 8.2 13.8 9.5 13.1 8.2 9.10Ex-organic (n=40) 17.3 23.6 19.8 16.3 12.0 12.38

A key determinant of productivity of coffee productivity is access to fertilizer.16 Table 13 presents fertilizer usage for sampled nonorganic and organic producers between 2004– 2005 and 2008–2009. In 2008–2008, only 49% of nonorganic producers reported using fertilizer for the production of coffee. This percentage has increased markedly since the mid-2000s, when less than 33% of producers reported using fertilizers. The percentage of organic producers applying Biogreen in 2008–2008 (48%) is similar to the percentage of nonorganic producers. All organic producers applied coffee pulp to their plantation and had nitrogen-fixing shade trees on their farms. Only 12 organic producers reported use of compost and bocachi for coffee production. Interestingly, during the early years of Soppexcca’s involvement in organic production (2002–2004), the production of compost and bocachi was carried out by most households, but the high costs of producing the fertilizer and the low results obtained (in terms of productivity) led most to abandon production. For the nearly two-thirds of Soppexcca’s organic producers who do not use Biogreen, the only other fertilizer used is often coffee pulp. Roughly 50% of nonorganic producers attributed their current fertilizer usage to short-term credit offered by Soppexcca, while the other 50% attributed usage to their own income (would have purchased fertilizer without Soppexcca credit). All Biogreen was purchased through short-term credit provided by Soppexcca.

Table 13. Solid fertilizer usage by Soppexcca members, 2004–2005 to 2008–2009 % of members

reporting fertilizer usage

Minimum number of 100-lb

sacks used

Maximum number of 100-lb

sacks used

Mean number of 100-lb sacks

used N-P-K fertilizer usage by nonorganic members, including ex-organic (n=150) 2008–2009 73 1 30 5.02007–2008 66 1 35 5.32006–2007 57 1 60 5.22005–2004 45 2 30 3.52004–2005 32 1 30 3.0

16 The amount of fertilization required depends on soil quality and how much coffee is produced, in other words, the quantity of nutrients removed each year as coffee beans. Valkila (2009) estimates that to keep coffee yields at a reasonable level and maintain soil fertility, a minimum of 54 pounds of nitrogen/manzana is needed annually, in addition to recycling coffee pulp and using nitrogen-fixing shade trees. The most common nonorganic fertilizer used by Soppexcca members contains 25 pounds of nitrogen/100-pound sack, thus requiring two sacks/manzana. Additional key determinates of productivity include number of trees per manzana, age of coffee plants and cultivation practices in addition to fertilization (use of shade, pruning and stumping).

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Biogreen fertilizer usage by organic certified members (n=65) 2008–2009 31 4.0 90.0 28.52007–2008 40 2.0 90.0 28.02006–2007 34 2.3 160.0 28.72005–2004 0 0 0 02004–2005 0 0 0 0

Higher intensity production methods can increase productivity by three times for organic and eight times for nonorganic (Valkia 2009). However, many of Soppexcca members lack the funds necessary to make investments that would intensify production in the short term (fertilizer usage) and midterm (reestablishment of coffee plantation). When short-term credit is available, a significant number of producers reported using it for purposes other than the intensification of production, such as paying off other debts and covering school and medical expenses. In situations of poverty, producers avoid the costs of fertilizers as well as other costs of more intensive management. In addition, land-tenure problems remain a major issue among members in some base cooperatives. For example, 95% of the members of El Esfuerzo base cooperative had not invested in fertilizer usage over the past five years due to major conflicts in land tenure.

Human capital Evidence from the sample suggests that access to Soppexcca-provided technical assistance and training has resulted in the accumulation of new skills for the production of both conventional and organic coffee. For example, 141 households treated wastewater from wet coffee milling in the 2008–2009 production year that did not do so prior to their joining Soppexcca (Table 14). A common response to the question “What did you do with your wastewater from coffee wet milling the year prior to joining Soppexcca? was “We let the water run into the stream.” Also, 105 members applied coffee pulp (a byproduct of wet coffee milling) to their plantations in 2008–2009 who did not do so prior to joining Soppexcca. In most cases, households reported that they did not have access to technical services and training prior to joining Soppexcca. These households that did have access to technical services were concentrated in two base cooperatives where local intermediaries have established long-term relations with small-scale coffee producers or were producers with relatively large holdings of coffee who were able to sell directly to one of the large international coffee exporters. In addition, a large percentage of sampled producers identified changes related to 1) low-input production (for instance, use of traps for the control of insect pests, such as the coffee berry borer) and 2) shade management (to control mold-related diseases and improve quality).

Table 14. Implementation of new production practices by households Treatment of wastewater # Application of coffee pulp #

Current application: yes Application prior to joining Soppexcca: yes

19 Current application: yes Application prior to joining Soppexcca: yes

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Current application: yes Application prior to joining Soppexcca: no

141 Current application: yes Application prior to joining Soppexcca: no

105

Current application: no Application prior to joining Soppexcca: no

62 Current application: no Application prior to joining Soppexcca: no

81

Current application: no Application prior to joining Soppexcca: yes

0 Current application: no Application prior to joining Soppexcca: yes

3

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Social capital One measure of the strength of the ties between Soppexcca and its members is members’ level of satisfaction with services received. In the case of technical assistance, roughly 50% of sampled households reported very high or high levels of satisfaction between 2007 and 2008 (Figure 5). For the remaining 50% of sampled households that reported “moderate” to “not satisfied” levels of satisfaction with technical assistance, the major reason for reduced satisfaction was the lack of visits to the coffee plantations by the extensionists. This reflects the 1) limited size of the extension staff and 2) an inefficient internal organization. For example, each extension staff is assigned to two or three base cooperatives, irrespective of size of overall capacity for coffee production. In addition, there is no direct link between technical assistance and credit operations.

Figure 5. Level of satisfaction with Soppexcca technical assistance, 2007–2008, as reported by members

1.00 2.00 3.00 4.00 5.00

Level of satisfaction

0

20

40

60

80

100

120

Freq

uenc

y

Mean = 2.7901Std. Dev. = 1.20312N = 243

Very high Very low

Household data collection also included a series of questions related to problems experienced with Soppexcca-provided services over the past three years. Among households sampled, roughly 85% reported problems with late payment for coffee (referring to final payment once green coffee has been exported), 21% reported problems with late delivery of credit; 14% reported problems with insufficient credit amount; 12% reported no access to credit; and 9% reported excessive quality requirements as a major concern. There is reason to suspect that problems were generally underreported, as members were reluctant to report problems. Prior to joining Soppexcca, most members had never received technical assistance, guaranteed minimum prices (through fair trade) or credit (neither short term nor long term.)

When asked about overall appreciation of Soppexcca and its services, nearly all households expressed a high level of satisfaction with 1) relatively secure access to affordable credit, as most did not access any credit prior to joining Soppexcca (mainly due to fear of losing land because of noncompliance with credit terms), 2) access to assistance from development projects through Soppexcca (one-off subsidies for the purchase of cows and goats, donations of school supplies, access to medical brigades) and 3) access to higher prices, especially when mainstream coffee prices are low. Combined, these services explain why most nonorganic Soppexcca members continue to sell at least part of their production to Soppexcca despite the relatively high prices and lower costs presented in mainstream markets.

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Another indicator of members’ bonds relates to side-selling, or the selling of parchment coffee to buyers other than Soppexcca. From the point of view of Soppexcca, side-selling has major negative implications since it reduces the flow of coffee to Soppexcca and increases the risk of offering credit. From the point of view of Soppexcca-affiliated households, side-selling is often necessary due to irregular cash flows and lack of savings that may force members to sell coffee during the harvest season, when coffee-related production expenses are relatively high. In other cases, especially among producers with relatively high levels of natural and social capital, side-selling results from strong bonds with other buyers (for example, major coffee exporting firms in Nicaragua that offer favorable credit terms and other services to relatively large-scale producers).

Figure 6. Side-selling by Soppexcca members, 2006–2007 (N=136)

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Conventional Organic

Among responding households (n=136), the median value of side-selling (percentage of production sold outside Soppexcca) was roughly 40% (Figure 6). The distribution of side-selling was much more varied among households producing conventional coffee than for those producing organic coffee. This may reflect the relatively small price difference between Soppexcca and local intermediaries for conventional coffee (as compared to the larger difference faced by organic producing households) and stronger ties to local buyers among households that produce conventionally. (In general, income levels were significantly higher for conventional producers than for organic producers.) Among most conventional producers, enough green coffee was delivered to Soppexcca to cover short-term credit obligations, with the remaining coffee being sold outside of the cooperative.

Physical capital The total value of production-equipment purchases by sampled households between 2004 and 2009 was US$222,512 (Table 15). About 50% of the value of these purchases were for trucks and wet coffee mills, the latter financed entirely with Soppexcca-provided credit. Small motors, which totaled US$28,089, were also purchased for the wet processing of coffee. Income from the sale of coffee was the principal enabling factor for the purchase of physical capital, enabling 39% of the total value of purchases (Table 16). Soppexcca credit also played an important role in facilitating these purchases: 31% of the value of total purchases was attributed directly to Soppexcca-provided credit, while 8% was partially attributed to Soppexcca-provided credit.

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Table 15. Purchase of tools and equipment by Soppexcca members, 2004–2009 Purchases # purchases Total value (US$)

Truck 4 27,647Wet mill 69 87,577Oxen/horses 19 3,265Infrastructure 10 8,059Small motors 46 28,089Sprayers 128 9,154Small tools 102 2,258Other 169 56,463Total 547 222,512 Table 16. Enabling factors for purchase of tools and equipment, 2004–2009

Enabling factor(s) # purchases Total value (US$) Credit other 28 21,927 Credit Soppexcca 78 69,431 Income coffee 310 86,475 Income other sources 58 10,326 Donation Soppexcca 4 212 Donation other 53 5,066 Sale coffee + credit Soppexcca 4 1,988 Sale coffee + credit other 2 20,000 Sale coffee + donation 2 75 Sale coffee + sale other product 8 7,012 Total 547 222,512 For most producers, however, changes in physical capital over recent years have not been significant. While the average amount invested per member in physical capital was US$783.49, the median amount was significantly lower, at about US$200 per member (Figure 7). Twenty-five percent of the sample invested minor amounts in physical capital (<US$50).

Financial capital In 2007–2008, the average gross income for nonorganic Soppexcca members was US$4,947.23 (Table 17). The average income for ex-organic members was slightly lower at US$4,757.56, while the gross income for organic members was significantly lower than the incomes of both nonorganic and ex-organic, at US$3,561.36. Organic and ex-organic producers were more dependent on income from coffee production, with 54% and 59% of total gross income derived from coffee, respectively, than their nonorganic counterparts, with 42% of total gross income derived from coffee. In comparison with nonorganic producers, organic and ex-

Figure 7. Investments in tools and equipment by sampled Soppexcca members, 2004–2009

Conventional X-Organic Organic

Producer type

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organic producers were also more dependent on Soppexcca for the marketing of their coffee: sales to Soppexcca accounted for 78% of total coffee sales for organic and ex-organic producers, while sales to Soppexcca accounted for only 51% of total coffee sales for nonorganic producers. Off-farm income, including work on other coffee plantations, construction and migration, was more important for organic producers than for the other two producer types.

Table 17. Average gross income 2007–2008, by income source and member type Average gross income earned per member in 2007–2008

(US$)* Income source Nonorganic (n=185) Ex-organic (n=40) Organic (n=71)

Coffee sold to Soppexcca 2,087.73 2,818.14 1,914.30 Coffee sold to buyers other than Soppexcca 1,966.89 780.94 555.20 Off-farm income sources 354.69 576.95 775,08 Banana 161.63 289.63 114.08 Other sources 376.29 291.90 202.70 Total 4,947.23 4,757.56 3,561.36

*Income estimates based on top five income sources, as reported by Soppexcca members

Nonorganic producers achieved the highest gross income per manzana in 2007–2008, with an average gross income of US$4,947. Ex-organic producers achieved a gross income similar to that of the nonorganic producers, US$4,757. However, gross income per manzana of coffee was significantly lower for the organic producers, at US$3,561. This reflects the overall low productivity of low-input organic production and the relatively high prices paid for nonorganic coffee in the 2007–2008 production year. Table 18. Average gross income from coffee per manzana, by producer type, 2007–2008

Average gross income earned per member in 2007–2008 (US$)* Income source

Nonorganic (n=185) Ex-organic (n=40) Organic (n=71) Coffee sold to Soppexcca 2,087.73 2,818.14 1,914.30 Coffee sold to buyers other than Soppexcca 1,966.89 780.94 555.20 Total coffee sales 4,054.62 3599.08 2469.50 Average manzanas in coffee production, 2007* 2.43 2.94 2.47 Average gross coffee income per manzana 1,668.57 1224.18 999.80 Total 4,947.23 4,757.56 3,561.36

* Manzana (mz) = 0.705 hectare (ha)

Most of the sampled households perceived increased income flows over the past five years (Table 19): 85% percent of nonorganic producers perceived income flows to be “improved” to “much improved,” as did 80% of organic producers. Perceptions are likely to be highly influenced by the sustained increases in international coffee prices and their ability to acquire long-term financing for the repopulation and renovation of their coffee plantations. A somewhat high percentage of producers perceived no change in their income over the past five years: 21% for nonorganic and 5% for organic. Such cases typically involve households whose overall coffee production volumes had been low over the past five years, and thus increased prices had relatively little effect on overall income perceptions. Five percent of

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conventional producers perceived “worsened” or “much worsened” income flows over the past five years, compared to 12% of organic producers. These were typically cases where productivity was severely impacted by disease and nutritional deficiencies, combined with a limited ability to repopulate the plantation.

Table 19. Perceived change in income by member type, 2008–2004

Producer type Perceived change Frequency % subtotal

Much improved 24 11 Improved 162 74 No change 21 10 Worsened 12 5

Conventional (n=219)

Much worsened 0 0 Much improved 3 5 Improved 47 75 No change 5 8 Worsened 7 11

Organic (n=63)

Much worsened 1 2 Total 282

Approximately 95% of the sampled households did not report access to credit for agricultural production or consumption prior to joining Soppexcca. In 2008, the 11 base cooperatives sampled received a total of US$266,575 in short- and long-term credit. The average amount of credit per member was US$949. However, cooperatives whose members had relatively higher annual incomes received a much higher share of the credit available (Table 20). Members of the three highest earning base cooperatives averaged US$2,368 in credit in 2008, compared to US$362 for the three lowest-earning base cooperatives.

Table 20. Total credit received (US$), by sampled base cooperatives, 2008 Base cooperative # households Average annual

income (US$) Total credit

received Avg.

credit/member Bernardino Díaz Ochoa 28 2,787 12,139 434Ernesto Acuña 25 9,689 86,305 3,452Feliciano Hernández 9 6,720 17,176 1,908Jesús Rivera 19 3,095 33,126 1,743Juan Fernández 23 3,046 13,851 602La Unión 25 3,374 15,111 604La Unidad 33 5,585 31,230 95Osman Martínez 38 9,260 20,468 539Julio Hernández 31 2,465 19,886 641El Esfuerzo 31 1,846 5,334 172Los Alpes 19 5,693 11,949 629Total 281 266,575 949

Income benefits from participating in value chains for certified coffee The net price of coffee for Soppexcca members depends on the sales made by cooperatives and the cost members are charged for services. These costs include dry milling of coffee, exporting, administration, marketing, capital and costs of organic and fair trade certifications. Costs do not include technical assistance to producers, as related costs for this service are covered entirely by projects. The net price paid to nonorganic coffee producers was US$109 per pound in 2005 and US$130 per 100-pound sack of green coffee in 2008. (Note: this price is the average of all contracts for coffee, both fair trade and non-fair-trade certified.) The net

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price paid to organic producers was significantly higher, as US$124 per sack of green coffee in 2005 and $150 per sack of green coffee in 2008. When Soppexcca members sell to buyers other than Soppexcca, they face the prevailing market price, with no reductions for services.

Comparing fair trade organic prices with prices in the mainstream market is complicated because coffee prices are highly volatile. From the point of view of Nicaraguan small-scale producers, the price during the harvest season from December to March is particularly relevant–the prices producers receive in Nicaragua depend directly on the New York market price. To establish a reference price, the average price for the month of January, the peak of the harvesting season, was calculated. The average net price for producers was US$0.85 per pound ($85 per sack of green coffee) in January 2005 and US$1.18 per pound (US$118 per sack) in January 2008 (Valkila 2009).

In general, the price premiums provided by organic and fair trade certified coffees have declined as mainstream coffee prices have increased. Table 21 compares the average price for January in the mainstream markets with the final organic price and nonorganic prices paid by Soppexcca.16 Organic coffee received a 46% price premium in 2005 and a 27% price premium in 2008. Nonorganic, fair trade certified coffee received a 28% premium in 2005 and a 10% premium. The Soppexcca prices do not include the fair trade social premium (5 cents per pound in 2005 and 10 cents per pound in 2008). It is noteworthy that payments were faster in mainstream markets than from cooperatives of the fair trade organic producers. In addition, mainstream markets are less strict regarding quality and, in some cases, provide transportation (a service that Soppexcca does not provide).

Table 21. Relative coffee prices paid to producers, 2005 versus 2008 Price paid to producers (US$) % price premium offered by

Soppexcca over mainstream coffee

2008 2005 2008 2005 Organic, fair trade coffee 1.50 1.24 27 46 Nonorganic, fair trade and uncertified coffee

1.30 1.09 10 28

Mainstream coffee prices 1.18 .85 -- --

In addition to reduced price premiums, producers must also bear several other costs that are associated with sales to Soppexcca. One of these costs is the lag (usually three to five months for final payment of coffee. In contrast, local buyers and export companies offer full immediate payments (or alternatively, payment and finalization of the sale at a time of the producers’ choice if there are expectations for higher prices in the future). Soppexcca members (individually or through their base cooperative) are responsible for the transport of their coffee Soppexcca’s warehouse in Jinotega. In addition, Soppexcca members face strict standards for quality standards that are not imposed by local intermediaries. For those Soppexcca members with access to credit from export companies (approximately 15% of sampled producers), export companies gave financing at an annual interest rate of 11%–15%, including all costs. Furthermore, short-term prefinancing was provided during the harvesting season, with no interest charged, as the loan was guaranteed against the coffee harvest. By contrast, Soppexcca charges interest rates of 16% on loans to their members.

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6 Conclusion

By way of conclusion, we first revisit the key issues that were identified in the theory of change (see Section 2 for details), asking the questions: “Did the interventions contribute to increased asset building and business viability for Soppexcca?” “Did the interventions significantly contribute to increased asset building and reduced vulnerability among Soppexcca’s members?” We then reflect briefly on the lessons learned in the implementation of the assessment methodology.

Summary Did the interventions contribute to increased asset building and business viability for Soppexcca?

The answer is difficult in the light of changes in mainstream coffee prices and limitations that this places on Soppexcca to capitalize and secure production from its members. Had this assessment been carried out in the mid-2000s, during the height of the coffee crisis, social and financial capital endowments and overall income flows would have been much stronger. On the other hand, Soppexcca has managed to survive one crisis after another and maintains a local, core group of producers. It is unable to grow given its limitations to expand credit offer and technical assistance. Other important findings include: • Interventions by projects and NGOs had a major impact on strengthening Soppexcca’s

overall asset endowment and long-term business viability. Attribution is clearest in the cases of physical capital (for example, subsidies for the purchase of office and warehouse facilities, equipment and processing plants) and financial capital (subsidies and access to annual low-interest loans for the capitalization of short- and long-term credit operations). Without increased stocks of financial capital, Soppexcca would have faced a major challenge to obtain raw material for its growers beyond 2005 (when mainstream coffee prices began to increase relative to fair trade and organic certified coffees)..

• Between 2002 and 2004, interventions in strengthening Soppexcca’s credit and technical offer, as Soppexcca’s own well-established contact with international buyers of fair trade coffee, allowed it to rapidly increase its membership base. However, since 2004 membership levels have remained flat–the significance of flat membership growth on future development is unclear. Soppexcca has also made the decision to restrict all new membership to avoid further pressure on its credit supply.

• Human capital has been built up since the beginning of this decade, especially as related to the production of organic coffee and low-input nonorganic coffee and quality control. The overall professional administration was a product of buyers’ interventions following the financial collapse of Soppexcca’s predecessor organization, Jiprocoop. Soppexcca has maintained a professional administration, with inputs and oversight from members. In this sense, Soppexcca stands out among most producer-owned organizations. However, major challenges remain to build up the human capital of members directly involved in Soppexcca administration (board of directors, oversight committees).

• Social capital is very strong with buyers (repayment of debt, commitment to fair trade principles and provision of high-quality coffee) and with some members (offer to social services, credit and access to higher prices in times of depressed international prices). Member bonds tend to be stronger among the poorest of producers. The accumulation of social capital is partly from donor and project subsidies for the provision of credit and technical assistance and partly from effective business management by Soppexcca and its members.

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• Long-term viability has increased markedly in recent years, although Soppexcca remains dependent on subsidies for: provision of long-term credit and technical assistance. Like more enterprises owned by poor small-scale producers, it has major limitations to raise capital from member contributions. A potential limit to long-term growth is its difficulty to increase its access to organic production, which has remained flat since 2004.

Did the interventions significantly contribute to increased asset building and reduced vulnerability among Soppexcca’s members?

Here too the evidence is mixed. For those Soppexcca members who were willing and able to take advantage of opportunities provided by Soppexcca for expanding coffee production, renovating coffee plantations and diversifying into high-intensity organic coffee production, interventions have had a significant positive impact of asset building and reduced vulnerability. However, the majority of Soppexcca members did not have a minimum level of pre-existing assets that would have allowed them to effectively take advantage of the opportunities provided by interventions. These producers have benefited mainly in terms of reduced vulnerability from access to fair-trade minimum prices and credit, but in general have not been able to accumulate the assets required for exiting poverty. Other important findings include: • Roughly 20% of sampled households were able to significantly increase their income

through their participation in Soppexcca. These households were relatively well-endowed with natural capital (>10 manzanas in coffee production), financial capital (income and access to larger credit for investing in fertilizer and labor) and human capital (ability to experiment and learn for increased productivity). They have been able take advantage of long-term credit for expansion of the coffee area.

• The relative importance of Soppexcca for income generation by its members has been reduced significantly over recent years due to increased local competition for green coffee. That said, had this assessment been carried out during the coffee crisis, rather than in 2009, the importance of Soppexcca for income generation would have been dramatically different.

• The fact that member households deliver coffee to Soppexcca despite intense local competition for green coffee demonstrates the importance of Soppexcca as a safety net and source of credit. The knowledge that international coffee prices may collapse without notice in the future provides incentives for producers to maintain links with Soppexcca. The strongly held belief that Soppexcca will not take their land titles that were submitted as collateral allows members to risk the taking of short- and long-term credit.

• The relatively limited outcomes of Soppexcca-related interventions on members’ income have been diminished by high poverty faced by most member, and lack of effective options for 1) increasing their productivity and 2) reducing their risk to external shocks (for instance, increase in price of fertilizers, coffee diseases and prices for basic food stuffs), in addition to the relatively small price differential between Soppexcca’s fair trade price and international coffee prices.

• Organic producers that traditionally did not apply synthetic fertilizers to their plantation and therefore did not experience any major drop in productivity following conversion to organic production are better off in terms of income (taking advantage of premiums for organic), but their productivity is generally so low that these increases are small in absolute terms (additional 75 to 200 years). These producers represented about 15% of the sampled households.

• Organic producers who applied synthetic fertilizers to their plantations before converting to organic production typically faced dramatic reductions in productivity and plant health. These producers’ situations were worsened by Soppexcca-related interventions. In

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addition to reduced productivity, most were required to replant all area under coffee production—which may or may not have been possible—depending on their access to long-term credit. Most producers who reconverted to conventional production modes are producers of this type.

Methodological reflections The following reflections are based on field experiences in Nicaragua between March and September 2009.

Preparation for carrying out the assessment • Time required in preparing for fieldwork: Approximately four weeks of coordination were

necessary before entering the field for data collection. Coordination with Soppexcca for obtaining secondary information and information for the design of the sample frame (list of current members) consumed considerable resources due to a centralized management structure, and perhaps a certain level of fatigue for research projects. In addition, letters of agreement were signed between CATIE, Soppexcca and LWR that spelled out the rights and obligations of each. Formal approval was sought (and obtained) from Soppexcca’s board of directors before entering the field.

• Training of data collection assistants: Extensive training of data collection assistants was necessary, given the complexity of household-level data collection. Fifteen pretests were carried out over 2.5 weeks. The active involvement of the data collection assistants in the analysis of pretest results and in decisions regarding adjustments to the tool was important for deepening their understanding of the conceptual framework behind the assessment. This allowed them to enter into structured dialogues with household members for obtaining the desired information.

Data collection • Iterative development of the household data collection tool: Adjustments were made to

the household data collection tool following pretesting over two iterations. Despite the extensive pretesting carried out, two versions of the data collection tool were implemented in the field. The second version incorporated lessons learned in the implementation of the previous version. This improved the overall performance of the tool but also increased expenses (requiring follow-up visits to certain communities) and the complexity of information management—return visits were required for those households interviewed with the first version.

• Quantity of information collected: Ample room still exists for simplifying the household data collection tool. However, this would not decrease the investments required in training data collection assistants, as the nature of the assessment does not allow for closed-ended questions and the assistants must have a sufficiently broad understanding of the assessment to interact with household members to obtain the designed information.

• Precision of information obtained: The precision of the information obtained varied according to recall period and type of information requested. Information on expenditures was especially difficult to collect and so necessary adjustments were made to the data collection tool. The ability of the data collection assistants to interact with household members was key to increasing data precision—the ability to enter into a discussion regarding the questions to help the household member understand the question).

• Household data collection enriched with key information interviews: Key informant interviews with representatives of Soppexcca and with leaders of other cooperatives in northern Nicaragua were considered extremely useful in 1) putting the information obtained into context and 2) deepening the information on the enterprise analysis

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(understanding how Soppexcca interacts with its members. Unfortunately, limitations on time prevented the carrying out of focus groups.

Data analysis • Unaddressed issues in data analysis: Several key issues were left unaddressed in data

analysis, for example differences within the sample in terms of asset endowments were largely unaddressed and there was relatively little discussion of the factors that allowed some households to benefit and others not to benefit. Addressing these issues requires considerably more time for data analysis than was possible in this case study.

• Extensive requirements for data base design and entry: Data were managed using MS Access and analyzed using MS Excel and SPSS. Both MS Access and SPSS imply a steep learning curve. Each household questionnaire took 30 to 40 minutes to incorporate into Access. Hiring a specialist in MS Access greatly facilitated the database design and data entry. Future assessment would benefit from existing database design.

• Attribution: We were able to provide limited evidence of attribution in most cases; stronger attribution claims would only be possible with more extensive analysis (including multivariate statistical analysis). However, we were able to provide a general understanding of the relative importance of Soppexcca (and of participation in certified value chains for coffee) in the building of assets among its members.

References Bacon, C. 2005. Confronting the coffee crisis: can fair trade, organic and specialty coffees reduce

small-scale farmer vulnerability in northern Nicaragua? World Development 33 (3): 497–511. Castro, F; Montes E; Raine, M. 2004. Centroamérica la crisis cafetalera: efectos y estrategias para

hacerle frente. Sustainable Development Working Paper #23. World Bank, Washington, D.C. Denaux, G. 2008. Lo veo y no lo creo: la historia de 11 años de la UCA Soppexcca. Donovan, J; Stoian, D; Poole, N. 2008. Global Review of Rural Community Enterprises: The Long and

Winding Road to Creating Viable Businesses, and Potential Shortcuts. Technical Bulletin 29/Rural Enterprise Development Collection 2, CATIE, Turrialba, Costa Rica.

Flores, M; Bratescu, A; Martinez, JO; Oviedo, TA; Acosta, A. 2002. Centroamérica: el impacto de la caída de los precios de café. CEPAL, Unidad de Desarrollo, México, D.F.

Fieser, E; Padgett, T. 2009. What price for good coffee? Time, 10/5/2009, Vol. 174, Issue 13. International Coffee Organization (ICO). 2009. Study on fertilizer prices. ICO, London. International Coffee Organization (ICO). 2009. Coffee market report August 2009. ICO, London. International Social and Environmental Accreditation and Labeling (ISEAL). 2009. Code of

Good Practice for Assessing the Impacts of Social and Environmental Standards Systems (Draft version). ISEAL, London.

Lewin,B; Giovannucci, D; Varangis, P. 2005. Coffee markets: new paradigms in global supply and demand. World Bank, Washington, D.C.

Pirotte, G; Pleyers,G; Poncelet, M. 2006. Fair-trade coffee in Nicaragua and Tanzania: A comparison. Development in Practice 16 (5): 441–445.

Valkila, J. 2009. Fair trade organic coffee production in Nicaragua: sustainable development of poverty trap? Ecological Economics. In Press.

Varangis, P; Siegel, P; Giovannucci, D; Lewin, B. 2003. Dealing with the coffee crisis in Central America: impacts and strategies. World Bank Policy Research Working Paper #2993, World Bank, Washington, D.C.

van der Vossen, H. 2005. A critical analysis of the agronomic and economic sustainability of organic coffee production. Experimental Agriculture 41: 449–473.

Wilson, B.R. 2010. Indebted to fair trade? Coffee and crisis in Nicaragua. Geoforum 41 (2010): 84–92.

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Annex: Executive summary in Spanish (Resumen ejecutivo)

Antecedentes

La Alianza Internacional para la Acreditación y el Etiquetado Social y Ambiental (ISEAL por sus siglas en inglés), en colaboración con diversas organizaciones socias, ha redactado un código para evaluar los impactos sociales y ambientales de los sistemas de estándares voluntarios. Ese Código de Impactos provee el marco para que los sistemas de estándares desarrollen e implementen un programa de monitoreo y evaluación que muestre la contribución de los sistemas de estándares hacia el cambio a largo plazo (ISEAL 2009).

En el contexto de este estudio, creamos y probamos una metodología de evaluación que se enfoca en identificar los cambios en las dotaciones de activos en los medios de vida, las cuales se componen de capitales naturales, humanos, sociales, físicos y financieros. Los cambios en los diversos capitales con los cuales son dotados los hogares pobres y las formas en las que estos hogares usan esos capitales pueden proveer un valioso entendimiento de la pobreza. Su enfoque explícito para comprender los cambios en la dotación de activos de los pobres del área rural es lo que distingue a esta metodología de otras metodologías de evaluación de impacto. Dada la importancia del acceso a los mercados para los productos certificados a largo plazo, la metodología también se ocupa de los cambios en la viabilidad del negocio de aquellas empresas que tienen contacto directo y sostenido con los pobres del área rural, las cuales, en muchos casos, son cooperativas y otros tipos de organizaciones de productores.

La metodología fue diseñada por el CATIE en colaboración con un equipo internacional de investigadores y practicantes del desarrollo y fue probada por medio de la implementación de dos estudios de caso en Centroamérica: uno enfocado en la certificación orgánica y de comercio justo de café en el norte de Nicaragua y otra en la certificación de Forest Stewardship Council (FSC) para las operaciones forestales comunitarias en la región de Petén en Guatemala.

Un caso de café certificado como orgánico y de comercio justo en Nicaragua

La integración de los productores de pequeña escala en las cadenas de valor para productos agrícolas certificados ha sido promovida en Centroamérica para reducir la pobreza rural y proteger la base del recurso natural, así como para responder a las demandas de los consumidores de productos especializados, incluyendo orgánicos y de comercio justo.

Al iniciar la década del 2000, los proyectos de desarrollo y las organizaciones no gubernamentales (ONG) dieron un apoyo considerable a las cooperativas de café en Nicaragua en un esfuerzo para contrarrestar los efectos de la crisis del café—el período entre 1999 y 2003 durante el cual los precios internacionales del café cayeron de US$1,20/libra a entre US$0,45 y US$0,75/libra, impidiendo que muchos productores centroamericanos pudieran cubrir sus costos de producción. La sociedad civil continúa buscando alianzas con las cooperativas de café orgánico y de comercio justo como una opción sostenible para reducir la pobreza y promover la responsabilidad ambiental y social en el sector rural. Para los compradores, las alianzas con las cooperativas de café han facilitado su acceso a materias primas de alta calidad para cubrir la creciente demanda de cafés orgánicos, de comercio justo y gourmet en los mercados europeos y de Estados Unidos.

Este estudio de caso se enfoca en las experiencias de la cooperativa subsidiaria de café Soppexcca y de sus miembros individuales en las cadenas de valor para café certificado como orgánico y de comercio justo, y en cómo estas experiencias fueron moldeadas por relaciones de largo plazo con la sociedad civil y los compradores por casi siete años. Las intervenciones de la sociedad civil y los compradores han sido críticas tanto para Soppexcca (permitiéndole crear fuertes enlaces con cientos de pequeños productores de café, lo cual ha sido crítico para su posicionamiento a largo plazo en los mercados de café orgánico y de comercio justo), como para los miembros de Soppexcca (posibilitándoles expandir su producción, convertirse a la producción orgánica y mejorar la calidad del café y la producción en general).

El objetivo y la metodología

El objetivo de este estudio fue identificar, desde el año 2002, los cambios en la dotación de activos y en la pobreza entre los productores de café afiliados a Soppexcca y entre quienes participan en los

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mercados para la certificación de café orgánico y de comercio justo. La recopilación de datos se centró a nivel de la empresa subsidiaria (Cooperativa Soppexcca) y del hogar (miembros de Soppexcca). A nivel de empresa nos esforzamos en comprender cómo la participación en los mercados de comercio justo y orgánico ha facilitado a Soppexcca la construcción de capitales y la medida en que esto se ha traducido en una mejor viabilidad económica con responsabilidad social y ambiental. A nivel de hogar la recopilación de datos trató de identificar los cambios en la dotación de activos como resultado de la participación en las cadenas de valor de café certificado. También identificamos vínculos plausibles entre los cambios en la dotación de activos y sus posibles causas, con base en una comprensión de las diversas intervenciones llevadas a cabo para apoyar a Soppexcca y a sus miembros, al mercado general y al contexto político-legal, así como a las perspectivas de Soppexcca y de sus miembros. Los métodos de recopilación de datos incluyeron el análisis de información secundaria y entrevistas semi-estructuradas con hogares (n=296) e informantes clave (n=7).

El contexto

En los últimos 10 años, los precios internacionales de café cayeron en picada (1999–2003) y luego se recuperaron rápidamente (2004–2009). Actualmente los precios internacionales del café están casi a la par del precio base para el café de comercio justo (US$1,26/libra). Los relativamente bajos precios internacionales del café proporcionan fuertes incentivos a los productores para vender a cooperativas como Soppexcca, las cuales pueden ofrecer precios de comercio justo y además implican aumentar los costos de producción (control de calidad) y comercialización (pago final atrasado por hasta cuatro meses). Al aumentar los precios internacionales, los precios ofrecidos por las cooperativas de comercio justo disminuyeron relativamente, proporcionando incentivos a los productores para vender a través de los principales canales de comercialización.

Los compradores de café también han aumentado sus demandas a las cooperativas en lo que se refiere a mayor calidad y certificación del café. Aunque esto puede permitir a las cooperativas dominar los precios muy por encima del precio base de comercio justo, también establece requisitos a los productores para que cumplan estrictas normas de calidad. El apoyo estatal para el sector de café, la exportación agrícola más importante de Nicaragua, ha sido limitado: ni asistencia técnica ni crédito se proporciona al sector de café. A raíz de la crisis del café, el sector de banca comercial es reacio a extender el crédito a corto plazo para los pequeños productores de café, en parte como respuesta a las grandes pérdidas sufridas por el sector durante esta crisis. El crédito a largo plazo básicamente no está disponible para estos proveedores. El diseño y la prestación de servicios para el sector de café se han dejado en manos de las organizaciones de la sociedad civil, los compradores internacionales de café y las cooperativas en sí mismas. Para la mayoría de los productores de café de pequeña escala, la participación en las cooperativas de café es la única opción para tener acceso a crédito y asistencia técnica.

Los resultados e impactos a nivel de empresa

Los cambios en la dotación global de activos de Soppexcca han sido generalmente positivos desde 2002. Las intervenciones del sector público y privado han desempeñado un papel importante en estos cambios, junto con los dramáticos cambios en los mercados de café durante esta década y la total falta de apoyo para el sector cafetalero. Ambos sectores han proporcionado incentivos para que los pequeños productores busquen ser miembros de cooperativas.

• Capital natural: El área total de producción de café entre 2002–2009 fue ampliada de 596 a 850 manzanas17, duplicando los volúmenes de producción totales en este mismo período de casi 600.000 libras de café verde en 2002–2003 a más de 1,2 millones en 2008–2009 (nota: evidencia de miembros muestreados). Por otra parte, el acceso al café certificado como orgánico ha bajado debido a que hay menos productores certificados y estancados niveles de producción.

• Capital humano: Hay fuertes habilidades en administración de empresas y comercialización—altamente concentradas en puestos de liderazgo superiores; las capacidades internas para la producción de café orgánico y el procesamiento están creciendo, incluyendo la preparación

17 1 manzana (mz) = 1,42 hectáreas (ha)

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de café preparado. Por otro lado, hay una gran inestabilidad en cuanto a personal para asistencia técnica (debido a la dependencia en el financiamiento del proyecto y a la poca oportunidad para aumentar las contribuciones de los miembros) y una limitada capacidad de los miembros de Soppexcca elegidos en puestos de liderazgo para proporcionar dirección estratégica y supervisar las operaciones de Soppexcca.

• Capital social: Los enlaces seguros y a largo plazo se han mantenido con un pequeño grupo de compradores internacionales de café; existen nuevos compradores en los crecientes mercados de cafés especiales; se han establecido lazos más fuertes con las organizaciones de la sociedad civil y con las organizaciones de comercio justo que dan préstamos, y se han comprado mayores volúmenes de café a los productores afiliados (30% de aumento promedio por año 2001–2008).

• Capital físico: Soppexcca construyó una oficina, un almacén y 11 oficinas cooperativas de base. Una planta de procesamiento de café en seco fue comprada en 2009.

• Capital financiero: Los fondos para crédito se duplicaron entre 2004 y 2008 de US$201.617 a US$461.324; sin embargo, el crédito ofrecido por miembro es generalmente bajo (requiriendo que los productores busquen crédito adicional de otras fuentes o vendan café en los mercados locales). Los fondos para operaciones e inversiones no se modificaron durante el período; tampoco se informaron ahorros acumulados. La actual proporción entre las deudas y las ganancias es alta (aproximadamente 50%).

En general, la viabilidad de los negocios a largo plazo de Soppexcca ha aumentado, debido principalmente a importantes extensiones en los capitales financieros, humanos y sociales. Soppexcca ha demostrado su capacidad para responder ante las crisis (incluyendo el pago de una deuda de US$600.000) y mantener su base de miembros; sin embargo, Soppexcca sigue dependiendo en gran medida del apoyo de los donantes para la expansión de su programa de crédito y depende totalmente de las subvenciones de los donantes para el funcionamiento de su programa de asistencia técnica (costo estimado de US$50,000 por año). También se enfrenta a grandes limitaciones para aumentar el capital por contribuciones de sus miembros y por la venta de café. La reciente inversión de casi un millón de dólares en una planta de procesamiento de café en seco tiene el potencial para aumentar los ingresos operativos de Soppexcca, pero tales beneficios puede que solo se materialicen en un mediano o largo plazo.

Los resultados e impactos a nivel de hogar

Identificamos los siguientes cambios en las dotaciones de activos entre los hogares de la muestra: • Capital natural: El área de producción de café fue ampliada en 33% de los hogares (con una

expansión promedio igual a 1,1 hectáreas) y el acceso a fertilizante orgánico aumentó. Sin embargo, 37 de los hogares anteriormente certificados como orgánicos regresaron a la producción convencional, debido principalmente a la poca producción. Entre los hogares certificados como orgánicos, las experiencias recientes sugieren que las opciones en finca para la producción de fertilizantes (tales como bocachi y compost) fueron insuficientes para crear niveles de productividad suficientemente altos. La principal fuente de fertilizante (con base en el estiércol de pollo), la cual fue utilizada en promedio por 35% de los hogares certificados como orgánicos entre 2008–2009 y 2006–2007, tuvo más éxito en mejorar la producción, pero está amenazada por los cambios en la interpretación de los sistemas de estándares de certificación orgánica. En la actualidad, la mayoría de los productores orgánicos no utilizan fertilizantes en sus plantaciones, con excepción de la pulpa de café reciclada.

• Capital humano: Se utilizan mejores prácticas en el tratamiento de aguas residuales (n=141) y en el uso de la pulpa de café en los sistemas de producción (n=115); hay una implementación de prácticas de producción orgánica (n=100). Casi todos los productores muestreados demostraron mayor comprensión del manejo de tejido en sombra y planta, así como de las medidas de control de calidad.

• Capital social: Se forjaron enlaces más fuertes con Soppexcca a través de más servicios ofrecidos (crédito, asistencia técnica), asistencia de emergencia (por ejemplo, donaciones o crédito para funerales y otras emergencias) y demostrada capacidad para mantener

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relaciones con los compradores y los donantes; sin embargo, un alto porcentaje de café todavía se vende fuera de Soppexcca: media=40% en 2006-2007 para los productores tanto orgánicos como convencionales.

• Capital físico: Las inversiones ascendieron a más de US$220.000 (2004–2009) entre todos los hogares muestreados, con la mayoría de estas inversiones para la construcción de infraestructura y la compra de equipos para la molienda húmeda: un promedio de US$200 de inversión por hogar. La acumulación de capital físico para todas las actividades productivas fue altamente restringida (<US$50) entre el 25% de la muestra. En los hogares con cinco o más manzanas de área de producción no se encontró ninguna relación clara entre las inversiones en capital físico y el área total de producción, lo que refleja el papel del acceso a crédito a largo plazo destinado a la construcción de beneficios para plantaciones de café más pequeñas pero relativamente productivas.

• Capital financiero: El precio anual alcanzado por Soppexcca en los mercados de cafés certificados ha disminuido en los últimos años. Esto es resultado de que los precios de café convencional han aumentado más rápidamente que los precios de café certificado: el precio anual para el café certificado como de comercio justo y orgánico en 2008 fue 41% inferior al de 2005, mientras que el precio anual para el café certificado como de comercio justo (sin ser orgánico) era 64% menor en los mismos dos años. Entre los productores afiliados a Soppexcca, los productores no orgánicos lograron los mayores ingresos brutos por manzana en 2007–2008, con un ingreso bruto promedio de US$4.947. Los productores que anteriormente fueron orgánicos lograron un ingreso bruto similar al de los no orgánicos (US$4.757), mientras que el ingreso bruto por manzana fue significativamente más bajo para los productores de café orgánico (US$3.561). El relativamente bajo ingreso obtenido por los productores orgánicos refleja la baja productividad relativa a la producción no orgánica, combinada con los precios relativamente altos pagados para café no orgánico en el año de producción 2007–2008. El 75% de los miembros reportó un mejor acceso al crédito; sin embargo, la distribución es muy sesgada hacia las cooperativas de base con ingresos más altos: el crédito promedio fue de US$2.368/miembro en 2008 para tres cooperativas de base con el más alto ingreso promedio anual, en comparación con un crédito promedio de US$362/miembro para tres cooperativas con el más bajo ingreso promedio anual. La venta suplementaria entre los productores convencionales y orgánicos fue de alrededor de 40% de la producción anual total en 2008. Para la mayoría de los hogares muestreados, el crédito proporcionado por Soppexcca fue su único acceso a crédito.

Igualmente, para la mayoría de los productores, la vulnerabilidad ante los choques externos se ha reducido a través de su afiliación con Soppexcca. Los servicios proporcionados por Soppexcca reducen la vulnerabilidad al dar acceso a lo siguiente:

• Seguridad en los mercados de café de mayor valor ante la inestabilidad de las condiciones del mercado internacional para el café convencional

• Soporte técnico para solucionar los problemas de producción y aumentar la productividad • Apoyo del proyecto más allá de la producción de café, incluyendo campañas de atención

médica, becas educativas y programas de seguridad alimentaria (donaciones de semillas y ganado)

• Crédito para casi el 75% de los miembros muestreados con tarifas generalmente más bajas que las de los bancos o intermediarios. La mayoría de los hogares percibe un bajo riesgo en cuanto a perder el título de su propiedad (y voluntad de Soppexcca para reestructurar la deuda) como resultado de los impactos negativos en el clima, los precios o el suministro de mano de obra familiar (por ejemplo, divorcio o muerte).

• Crédito de emergencia (sin intereses si paga en el mismo año de cultivo) y donaciones de Soppexcca para atención médica y funerales de los miembros del hogar.

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Apreciación general

La integración de los pequeños productores de café afiliados con Soppexcca en las cadenas de valor de café certificado como de comercio justo y orgánico ha tenido resultados mixtos en términos de desarrollo de activos a nivel de la empresa y del hogar.

Desde la perspectiva de Soppexcca, la participación en las cadenas de valor para el café de comercio justo ha sido fundamental para su acumulación de activos a largo plazo. Su actual existencia se debe, en gran parte, al amplio apoyo recibido de los compradores de comercio justo a principios de la década del 2000, ya que Soppexcca luchó por surgir de las cenizas de su organización predecesora, que tenía una deuda de US$600.000. La mayoría de los fondos de Soppexcca para crédito a corto y largo plazo ha sido adquirida de entidades crediticias para comercio justo y de proyectos de desarrollo con un enfoque en responsabilidad social y ambiental.

Soppexcca ha mantenido fuertes relaciones a largo plazo con varios donantes bilaterales y organizaciones no gubernamentales que, a su vez, han proporcionado a Soppexcca subvenciones y donaciones para sus operaciones de crédito y de asistencia técnica y para la acumulación de capital físico. El desarrollo de capital humano (entre los miembros de Soppexcca para la administración y supervisión de los negocios) y capital social (enlaces entre Soppexcca y sus miembros) no ha sido un enfoque importante de las intervenciones, por lo que estos aspectos de capital social y humano siguen siendo relativamente débiles.

Soppexcca continúa enfrentando importantes desafíos para financiar sus operaciones y es peligrosamente dependiente del apoyo externo. El pronóstico a corto plazo para Soppexcca es uno de crecimiento positivo pero lento. Sin embargo, los pronósticos de crecimiento a mediano y largo plazo dependerán probablemente del apoyo adicional de los donantes. Ese apoyo se necesitará para 1) expandir los programas de crédito de corto y largo plazo, 2) encontrar soluciones a largo plazo para una mayor productividad de los productores orgánicos y convencionales con baja introducción de insumos y 3) apoyar a la administración en el desarrollo continuo de sus capacidades (especialmente en caso de un cambio de administrador).

A nivel de hogares, la certificación orgánica ha tenido impactos significativamente positivos para un subgrupo de los miembros de Soppexcca: principalmente para aquellos que tenían niveles relativamente elevados de capital natural, financiero y humano antes de entrar a Soppexcca. Estos productores han podido aplicar métodos de producción intensiva para la producción orgánica y no han sufrido mayores disminuciones en su productividad. Este subgrupo constituye cerca de 20% de los productores orgánicos muestreados. Los productores orgánicos con la menor dotación de capitales se han beneficiado marginalmente de la participación en la producción orgánica. Estos productores (aproximadamente 80% de los productores orgánicos muestreados) no han sufrido cambios importantes en los costos de producción o la productividad, pero se han beneficiado de los precios anuales asociados con café de comercio justo y orgánico.

Un significativo número de productores (n=40) ha dejado el programa orgánico durante los últimos cinco años debido a 1) la reducción en el precio anual relativo, 2) la gran disminución en la productividad y 3) el aumento de los costos de producción (principalmente relacionados con la mano de obra). En algunos casos, estos productores anteriormente orgánicos enfrentaron un período de desacumulación de activos como consecuencia de la reducción en la productividad y la falta de acceso al financiamiento para replantar en su plantación de café. En el futuro, el diseño de las intervenciones para facilitar el acceso a los mercados de café orgánico para los productores pobres debería tomar en cuenta el potencial de los impactos negativos de la conversión y producción orgánica y proporcionar redes de seguridad apropiadas para reducir el riesgo de desacumulación de activos.

Durante la crisis del café, numerosas publicaciones alegaron que la participación en los mercados de café de comercio justo y orgánico era la clave para mejorar los ingresos del productor, con base principalmente en el ventajoso precio del café de comercio justo pero con conocimiento limitado de las barreras que enfrentan los hogares para aumentar sus ventas a las cooperativas. Más recientemente ha surgido un creciente número de artículos que critican al comercio justo por no proveer precios anuales significativos cuando los precios internacionales de los productos convencionales son altos. Nuestro estudio muestra que un enfoque basado únicamente en el diferencial entre precio absoluto y relativo para el café de comercio justo falla al explicar el papel del

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comercio justo en las relaciones de los productores con las cooperativas y con otros actores de la cadena en el largo plazo. De hecho, el diferencial de precio, aunque evidentemente crucial para mejorar los ingresos durante tiempos de precios internacionales deprimidos, es sólo una de varias maneras en que la participación en Soppexcca y en cooperativas similares certificadas como de comercio justo puede promover la creación de activos y reducir la vulnerabilidad. Los ejemplos incluyen un área ampliada para la producción de café, la reducción de la vulnerabilidad ante los impactos del mercado, mejor acceso a proyectos de desarrollo (capacitación, servicios, subvenciones, donaciones), mejores técnicas de producción por medio de la formación de capital humano y mayor calidad al mejorar la infraestructura de molienda y el manejo poscosecha. También mostramos que debe darse más atención a la construcción de activos a largo plazo a nivel de la cooperativa y de los hogares. El acceso al crédito de corto y largo plazo desempeña un papel importante, pero tendrá sólo efectos limitados para aquellas familias con las menores dotaciones de capital.

El diseño de futuras intervenciones para apoyar a los pequeños productores en mercados orgánicos certificados debe incluir medidas para promover el aumento en la productividad y proteger a los productores más vulnerables ante los riesgos de disminución de la productividad y salud de las plantas. El aumento en la productividad dependerá en parte del acceso seguro a los fertilizantes a través de una combinación de crédito, subvenciones e innovación tecnológica, así como a la adopción de buenas prácticas de producción por parte de los hogares productores. Además se requerirá mejorar la prestación de asistencia técnica para hacer visitas más frecuentes, fortalecer la comunicación entre los extensionistas y los productores, que los extensionistas supervisen más de cerca la producción, y respuestas rápidas y eficaces ante potenciales plagas y enfermedades (incluyendo rápido acceso a crédito y asistencia técnica para emergencias que se den por la producción).

Las mejoras en la asistencia técnica también requerirán una mayor coordinación entre las unidades de asistencia técnica y crédito dentro de Soppexcca; por lo cual, el crédito a largo plazo está condicionado a las inversiones específicas para aumentar la productividad. Los seguros y otras formas de compartir el riesgo pueden ayudar a aumentar el número de productores orgánicos y a reducir la deserción de los productores durante períodos de precios anuales reducidos (precios relativamente altos de café no orgánico). El lograr estas mejoras requerirá hacer cambios importantes en la organización y el financiamiento de las actividades de Soppexcca que, a su vez, requerirán gran coordinación en el seno de Soppexcca y con los proveedores de servicios, los donantes y las organizaciones de investigación.

Este estudio es un primer intento para desarrollar una metodología de evaluación enfocada en la construcción de activos por pequeños productores y empresas ascendentes dentro del marco general establecido por el Código de Impactos. Al diseñar la metodología se pretendió lograr un equilibrio entre el rigor científico y la facilidad de implementación. Durante la implementación, se tuvo mucho cuidado para garantizar la objetividad y precisión y para incluir a los socios locales, como Soppexcca y LWR, en la evaluación. El enfoque en la construcción de activos produjo una mejor comprensión de los cambios en la pobreza y en la viabilidad del negocio que normalmente es producida por otros métodos de evaluación. Por otro lado, la cantidad de datos y las habilidades necesarias para el manejo y análisis de esos datos eran amplias. Aunque los socios locales dieron aportes críticos a la evaluación, su participación estuvo limitada por la disponibilidad de tiempo. Otro factor que pudo haber afectado la participación directa de Soppexcca fue cierto grado de "fatiga de evaluación", ya que durante el período en el que se llevó a cabo esta evaluación también estaba en marcha una de nuestras tres evaluaciones sobre café de comercio justo con Soppexcca. Es necesario seguir trabajando para comprender mejor las opciones para una más fácil implementación, sin comprometer demasiado la riqueza del marco de construcción de bienes y asegurando que el propio proceso de evaluación sea útil a las organizaciones locales. Las áreas específicas de enfoque incluyen las siguientes: identificación de un conjunto básico de indicadores para los diferentes capitales que funcionaría a través de diversos sistemas de estándares; estandarización de los formatos para la presentación de informes (tanto para uso interno como para uso público) y aumento de la coordinación con las organizaciones asociadas y los equipos de evaluación para mejorar el aprendizaje en grupo y reducir costos.

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