Rainforest Alliance recently announced the release of an important study outlining an overlooked benefit for farmers of achieving certification: the ability to get larger and more frequent small loans. The study, Farmer Bankability and Sustainable Finance: Farm-Level Metrics that Matter, focused on Rainforest Alliance certified coffee and cacao producers, but results are likely to apply to other types of certification.
The study found that loans provided to certified farmers averaged 25% more than those to non-certified producers; the average dollar amount was over $2200 greater. Certified producers were also able to obtain more frequent loans than non-certified producers (1.36 loans annually, versus 0.66).
There is a fairly common group of metrics that lenders require from farmers on loan applications, including information on cash flow, crop volume and production figures, etc. What we as coffee consumers tend to forget is that many coffee farmers have limited literacy and keep very minimal records. For instance, in this study fewer than half of non-certified producers kept revenue records, and not even a third kept expense records. For certified farmers, 90% or more maintained these data.
Certification organizations (in this case Rainforest Alliance and its partners) provide training and technical assistance to farmers to help them achieve certification, as well as to perform the monitoring necessary to continue to renew certification. These improved record-keeping skills are very transferable: with them, the farmer has the ability to not only successfully apply for credit, but show the lender their needs and outcomes. While producers belonging to cooperatives can often obtain this kind of assistance from their organizations, fewer than 10% of small producers (less than 10 hectares) belongs to such an organization. Even so, lenders indicated that these types of records kept at the farm level enhanced the credit-worthiness of cooperatives and improved their access to financing as well.
These types of short-term loans are critical for producers to purchase organic fertilizers, farm equipment, replacement seed and plant stock, and so forth. Since coffee is a once-a-year crop that is so dependent on weather and market prices, coffee farmers can be particularly handicapped without access to credit. Finally, the more detailed records kept by farmers to maintain certification and obtain loans is really essential for them to improve their sustainable farming methods. Win-win for all!
The study compared Rainforest Alliance certified (63) and non-certified producers (57) in Colombia and Peru growing coffee (84) and cacao (26). Various lenders and finance organizations were also interviewed. The report has a lot of interesting information in it, including recommendations for standardization of records kept by producers and required by lenders. You can download the PDF here.