GAINING MARKET ACCESS
Gaining access to valuable markets involves more than just skill-development and capital finance. It involves contending with much larger competitors.
The large plantations, naturally, want to retain their advantageous market position. These same plantations are the sole purchasers of coffee fruit, so they have the power to make it difficult for small producers to raise the capital necessary to enter the green and roast coffee markets. By way of example, Mario told me that the large plantations keep records of the small coffee producers in their area, including how much coffee each farmer has in production. If a small producer, who may be attempting to process some of his harvest into green coffee, does not bring the large plantation all of their fruit, the purchaser will lower the offered price. This makes it difficult for small farmers to diversify their investment in processed and unprocessed coffee, which would allow them to mitigate the risk of entering a new market.
Even with the right equipment, processing coffee is a risky business for small producers, particularly in the first few years. An hour too long in the fermentation phase, or an unexpected shower that dampens the drying coffee, can ruin a batch of fruit. The lengthy export process means that earnings for green coffee sales are delayed, and sometimes spread throughout the year. Being able to sell one part of the harvest in the local fruit market and one part in the green coffee export market would provide the farmer with immediate income. Moreover, it would guarantee at least some income if the farmer lost a portion of the harvest through a processing or exporting misfortune.
Jorge also told me about an experience when he first started making sales calls on behalf of the cooperative four years ago. Buyer after buyer would cut the conversation short as soon as they heard that Jorge represented Antigua Valley coffee growers. Finally, one buyer explained that the previous year several cooperatives of Guatemalan coffee farmers, who were most likely exporting through a larger cooperative, had defaulted on their green coffee contracts. The large plantations had quietly approached individual farmers early in the season offering inflated prices for coffee fruit in order to lure the farmers into selling their fruit locally instead of processing it into green coffee and respecting their collective contract. The plan worked, and come processing time the cooperatives defaulted their contracts with the importers. This closed the export market to Guatemalan cooperatives in subsequent years, leaving access again only to the local fruit market. Prices for fruit subsequently dropped.
But, once again, let us work on positive assumptions. Assume that a coffee farmer, or a group of coffee farmers, gained access to the venture capital needed to purchase equipment and mitigate risk. Assume that they were able to acquire the skills to process and roast their coffee and had all the right connections to importers. Still, they would need an export license. And here we find ourselves back at the beginning.
After years of hard work, many setbacks, and tremendous mutual support between Jorge, Mario, Luis, Humberto, and the other farmers of the cooperative, they found themselves in the position of not being able to get their hands on an export license.
The rest of their story proceeded as follows: After their third rejection by Anacafé, Jorge and the farmers decided to approach the application differently. The farmers made connections with a group of progressive university students who had recently established their own business (with the legal status: Sociedad Anónima) providing services to small producers. The idea was for the students to apply for both a green and roast-coffee purchaser-exporter license (these licenses are specifically for entities who export coffee they purchase from farmers – the exporters do not grow the coffee themselves). The farmers would pay the students a nominal fee for the service of exporting their coffee. The students commenced the application process in 2006 and it took them a year and a half to attain their roast coffee purchaser-exporter license. At the time, in 2007, Anacafé had issued, in total, less than 50 such licenses for the entire country. Three years on, the students still have not been able to attain their green coffee purchaser-exporter license; despite engaging a lawyer. Green coffee has a longer shelf-life than roast coffee and represents a significantly larger market. The last time they presented their application, Anacafé told them that they needed to come back with a statement certifying that they had one million Quetzales in capital. There was no capital requirement listed in the Anacafé documentation.
I spoke to the leader of a coffee cooperative in Huehuetenango who had also tried, unsuccessfully, to obtain a green coffee producer-exporter license. He told me that it had become increasingly difficult over the last decade to get such a license. In 2005, Anacafé told his cooperative that they needed to be a legal business entity, a Sociedad Anónima, and prove that they had Q500,000 in capital. It took the cooperative one year to prepare their documentation and raise the capital required. Anacafé accepted their application, but it did not issue the license. In 2007, Anacafé asked the cooperative to update their application. They did. In 2008, Anacafé asked again for an updated application. Then the Anacafé staff member who was helping the cooperative with their application process was fired. A cooperative representative has been to Anacafé eight times in an attempt to collect the license. Each time he has come away empty handed. Apparently, the application is still being processed.
I invited Anacafé to comment on the experiences these two cooperatives have had in dealing with the association.
An Anacafé representative, the head of the licensing department, reported that no export license required the applicant to have a specific amount of capital reserves. However, she said that applicants for a purchaser-exporter license were required to present a statement certifying their financial position. It was the Anacafé assessor’s prerogative to deny the application if he/she thought the applicant did not have sufficient capital for the purchase of a full container of green coffee, approximately 500,000 Quetzales (275 x 152-pound sacks at Q12 per pound -base market price). She reported that the application process for a producer-exporter license did not require a capital assessment. Recall, the farmers from Huehuetenango, who were required to raise Q500,000 in capital, were applying for a producer-exporter license.
I asked the representative whether the cost of purchasing a full container of green container was higher two years ago, when the students helping the Antigua Valley collective had their purchaser-exporter license application rejected based on insufficient capital. The representative said costs were not higher two years ago. She had no explanation for why the assessor told the students they needed Q1,000,000.
The Anacafé representative explained that coffee farmers, small farmers in particular, were the most vulnerable in the supply chain. Anacafé, she claimed, endeavors to protect small farmers and support their development so they can enter the export market. She said that one way in which Anacafé protects farmers is by ensuring that they receive their earnings from sales to exporters up-front. Anacafé’s capital assessment for purchaser-exporter licenses ensures that exporters have sufficient funds such that they do not have to wait for sales revenue to come through from importers before paying farmers for the exported produce.
