Coffee is a fickle crop. Production depends on the amount of rainfall, soil composition, pests, sun exposure and disease. Too much or too little of anything, and the output falls.
Unpredictable rainy seasons and a new fungus have reduced yields in Central America and made income even less dependable in recent years. Farmers must usually wait until after coffee has been processed and exported to get paid, and often run out of money between harvests, forcing them to borrow or do without.
A Madison-based organization is trying to soften the blow from these unforeseeable circumstances on coffee farmers. Working Capital for Community Needs (WCCN) is a nonprofit that lends money to Latin American cooperatives and microfinance organizations. It has also, in one case, matched a producer and retailer.
In 2005 the group put Just Coffee, the local coffee-roasting cooperative, in touch with Fundación entre Mujeres (La FEM), a group formed to help women affected by domestic violence. The organization provides training and land for the women to work. Las Diosas - "the goddesses" - is the coffee arm of La FEM, and employs around 300 women on six co-ops.
Since 2009, La FEM has provided an estimate to Just Coffee and WCCN of how much money it will need to pay farmers for their harvest. WCCN loans the money to Just Coffee - averaging around $35,000 a year - which passes it to La FEM, interest free.
"Rather than look at it as a loan, we look at it as the first part of our payment," says Just Coffee cofounder Matthew Earley.
Normally the farmers would have to wait for payment until after the harvest, or take a lower price on the local market. By getting advance funding, especially after a bad year, farmers are able to buy supplies for their homes and farms and keep from going into debt or out of business.
After the coffee is processed, Just Coffee buys the crop from La FEM, minus the amount already loaned. WCCN then collects the loan repayment from Just Coffee, with interest paid by the roaster's profits. Says Earley: "In a very real way, our customers are helping us fund this model of prepayment, which I think is a pretty neat thing."
Investment, not charity
Wisconsin and Nicaragua are "sister states" under the Alliance for Progress, a plan initiated by President John Kennedy to encourage a relationship with Latin America. Under President Ronald Reagan, the United States began supporting the Contras against the democratically elected Sandinista government, and WCCN formed in 1984 as the Wisconsin Coordinating Council on Nicaragua to protest the U.S. interference. It focused on political activism and providing material aid to Nicaraguans.
"We published stories on the ground and organized delegations to show the effects of the embargo," says Jeanne Duffy, WCCN's marketing director and interim executive director. She's referring to the United States embargo against Nicaragua that prohibited all trade between the two countries from 1985 through 1990. "We also sent down equipment, like bicycle parts."
Wisconsin Coordinating Council on Nicaragua began to evolve in the 1990s. Duffy says that while other organizations left Nicaragua after the Contra war ended, they wanted to stay and focus on rebuilding. "When armies are disbanded and people don't have jobs to do, it can cause a lot of violence."
"There was a shoe co-op that had the people, the building and the machinery, but they did not have the money to buy the leather, the rubber and the laces to actually make the shoes," says Duffy. "We raised $30,000 in investments from people in the U.S. and sent the money to Prestanic. They, in turn, lent the money to the shoe co-op, which bought leather, laces, rubber and made the shoes and sold them. The shoe co-op got up and running again."
WCCN grew from there and by 2008 had $10 million in outstanding loans - all in Nicaragua. "It was very risky to have it all invested in one country, so we decided to expand the fund to other countries," says Duffy.
Wisconsin Coordinating Council on Nicaragua became Working Capital for Community Needs and now operates in six countries in Central and South America.
The group no longer engages in political activism and focuses entirely on loans. People can donate to the nonprofit, but most of the money the group receives is not charity - it's an investment.
Interest is based on the size of the investment. Interest on a three-year investment of $50,000 or more tops out at 4%. In comparison, a 10-year U.S. Treasury bond currently pays 1.74%.
"We feel it's a service to allow people to invest in a socially responsible way," says Duffy. "It helps people connect their money to their values."
The decent rates of return, along with its charitable goals, have allowed WCCN to raise a steady stream of cash. The organization now controls $14 million, $12 million of which is outstanding.
WCCN earns about 10% interest on the money it lends, which helps the group cover operating costs and grow its funds.
While the rate is high, so is the risk, because there is essentially no collateral if something goes wrong. If an organization defaults on a loan, Duffy says their options are limited. "If we did go after repayment, it could put a lot of women and children out of their homes," she says. "Our goal is to lend money to help people, not to put them out of business if things go bad."
Despite such risk, Duffy says the group has lost just $300,000 of the $72 million it has lent since 1991. And it has never been late when repaying investors.
Unlike the pre-financing arrangement it has with Just Coffee, Working Capital for Community Needs usually makes loans directly to co-ops, which dole out the money to individuals. Duffy says loans even as small as $500 can help pump needed capital into the farms or businesses of poor people. "It increases their production, and then they have enough money to send their kids to school or fix up their home."
Judith del Carmen Gualan Ramirez, from Ecuador, is one of these women. She started baking out of her home eight years ago, typically putting in 12-hour workdays. She used to sell her cakes and buns on the street, which meant she had to leave her six children at home unsupervised. As a result, they were not doing well at school. She started selling directly to stores and restaurants so she could stay home more, but then needed to buy more ingredients to meet the increased demand. She received a $500 loan from WCCN in 2010 to help her do that. Duffy reports her business is growing and her kids are all doing well in school.
WCCN will celebrate its 30th anniversary next year. New pamphlets are already being designed to showcase the group's various initiatives.
"We really believe our financing is alleviating poverty," says Duffy. "We're not giving donations to people, but giving them small loans that will help them build their business, improve their farms and increase their production. That will provide sustainable income for them and their families."