After reading a Bloomberg story on cost of production and profitability for Guatemalan growers earlier this month, I was inspired to add to last year’s series of articles on profitability in the Latin American Coffeelands (series begins here).
I’d like to highlight an impressive group of young coffee entrepreneurs who are asking themselves the central question in the Bloomberg piece, which is, ‘Is there any money in high-end coffee for Guatemalan growers?’” This group is filling a knowledge gap, a recurring obstacle faced by coffee farmers looking to engage with higher value specialty markets.
According to a 2018 report titled “Investing in Youth in Coffee Growing Communities,” there are 106 million young people (age 15-24) in the region and one in four are neither working or studying. Many of those that are working are part of the informal economy working in dangerous or exploitative situations. Given that many of Latin America’s rural regions are coffee-growing regions, the question is often asked in forums and conferences — including in report cited above — is, “What opportunities can be generated that could allow interested youth to thrive in coffee?”
A driven group of young people from several communities in Guatemala has been looking for answers to these questions, searching for profitable, locally driven, coffee-based livelihoods. This group comprises sons and daughters of smallholder coffee farmers who hail from a rural corner of San Marcos near the Mexican border, in Guatemala’s oldest coffee growing region.
A few years back, they participated in an ANACAFÉ-led course on coffee quality, which piqued their interest in coffee’s sensory properties and experience. Subsequently, six of them went on to participate in a Coffee Quality Institute course in Colombia. Remarkably after a little more than a year of experience cupping, three members of the group passed their exams, and added certified Q Grader to their resume, in addition to coffee producer and farm laborer.
As members of the group were fine-tuning their cupping expertise, they also formed a Savings and Internal Lending Community (SILC) with other youth in the community. A SILC helps its members strengthen financial literacy, accountability, and planning skills. The group saves and lends together, and often invests in small individual or group-based entrepreneurial ideas. Given the common interests of the members, this group decided it wanted to set up a coffee business.
The six most committed members of the group began to develop a business plan or, more accurately, multiple iterations of different business plans, to try to arrive upon a profitable business model, which would capitalize their skill set. They participated in a series of business development modules, to hone their model(s), and afterwards launched a coffee collective called PROCAFE.
Over the past three harvests, PROCAFE has developed a couple of promising income streams for the young entrepreneurs. PROCAFE has a small coffee quality laboratory. They offer peer-to-peer training modules, and during the offseason, they welcome young, aspiring cuppers from across the Guatemalan coffeelands, as well as quality control employees from smallholder coffee cooperatives (25-30 students in 2019).
The multi-day course includes modules that touch on the history of coffee, plant morphology, post-harvest processing, grading and defects, and cupping protocols. Most of their former students continue to work in other departments as cuppers for smallholder cooperatives. PROCAFE provides follow-up support, conducting troubleshooting field visits, at their students’ place of business.
Meanwhile, during the coffee harvest, the group receives parchment samples from their neighbors and family members at the lab. For a small fee, they cup the samples and provide market and quality-oriented farm management feedback to their clients. Investing their SILC savings and some seed capital, they select and purchase some of the most promising lots and sell on to roasters and exporters.
During the current harvest, the group sold 30,000 pounds of parchment to Olam. Their operating margin is small (3-10%), but enough to cover their costs and generate a modest profit — above the local trading price — which is divided between their farmer suppliers and the youth.
PROCAFE also roasts and distributes coffee locally through Tierra Verde, a grocery home delivery business, and has also sent green samples off to several specialty buyers. Their top lots consistently cup in the 84-85 point range.
Sustained expansion of PROCAFE has not been easy. A few major bottlenecks have slowed the business’ growth. They lack the financing needed to source larger lots of quality coffee or business development mentoring support, and they have yet to completely formalize the initiative, due to the associated costs and scrutiny involved. Another significant challenge is finding buyers who are willing to compensate producers through premium pricing for the additional costs involved in adopting practices that improve quality.
Loss of talent has also been an issue. Two members of the group have found work with a local coffee federation and an exporter, respectively. A formal job, with a steady paycheck and career development opportunities is not something common for rural youth in Guatemala. However, when pay is only slightly above the local minimum wage, how much closer are these youth to finding an answer to the question we posed at the top?
Can profitable opportunities for driven, entrepreneurial youth be generated within the confines of the current coffee value chain? How do we push more value down to these actors, who are committed to the wellbeing of the supply chain, and also possess a scarce set of skills?
There are worries but the remaining members are optimistic and focused on success in the midterm.
“Our plan has always been to continue expanding our reach and improving the price the farmer receives. We have a few buyers and contacts, but we lack the capital needed to source more coffee and grow the business. Given our limited track record, buyers won’t advance us the capital. We also aim to have our own roastery someday, to sell our coffee in the community, our local region, and at fairs, growing our brand along the way.” said Guillermo Cano, a Q grader and one of PROCAFE’s founders.
PROCAFE’s story is at a crossroads, as groups like theirs require investment — from industry, not just development organizations — to ensure their way forward is viable and profitable.
[Editor’s note: This post is appearing as part of an unpaid editorial collaboration between DCN and CRS. The original version appeared on the CRS Coffeelands blog, and it has been adapted and republished here with permission.]
Dan McQuillan is the Technical Director of CRS-Isidro, a new CRS blended finance initiative that provides a package of technical assistance and investment capital to impactful agricultural enterprises. From 2012-19, he managed Catholic Relief Services’ Agriculture Livelihoods portfolio for Guatemala and Mexico.