Annual Report 2021 V

Photo: Chinese cabbages, Marawi City, Philippines. © FAO/Noel Celis

Operating as an impact investor, the CFC finances interven­tions which have the potential to achieve higher social and economic impact in the country/region. The CFC under­stands that to act effectively and credibly as impact investor, the Fund must have a robust and efficient impact measure­ment and management system. In this regard, in October 2018, CFC’s Executive Board has approved the new impact strategy of the CFC. This chapter provides more details on the focus of CFC’s impact strategy, explains how the CFC has been implementing it, shows the impact highlights for CFC loan portfolio in 2021 and introduces three impact stories from featured CFC projects.

V.1 CFC impact management practice

CFC’s Impact Strategy Framework – The Sustainable Development Goals

The Sustainable Development Goals (SDGs) are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. Building on the Millennium Development Goals, they balance the three dimensions of sustainable development: economic, social, and environ­mental. The goals are interconnected, but at the base of their heart they aim to tackle the root causes of poverty and set the world on a more prosperous and sustainable path.

Each country carries primary responsibility for its own eco­nomic and social development, but acting in collaborative partnership is widely believed to be the best way to take bold and transformative steps towards a more sustainable and resilient world. Recognizing this, SDG 17 explicitly calls for an enhanced ‘Global Partnership for Sustainable Development’ which involves bringing together governments, civil society, and the private sector to mobilize all available resources. This call to action has been taken up by the Common Fund for Commodities (CFC), which adopted the SDGs as its impact framework.

Because of the fundamental economic role of commodities, CFC projects may impact on the advancement of all 17 SDGs. While acknowledging this, CFC’s impact management strategy mainly focuses on identifying its direct positive impact on selected ‘core’ SDGs where the impact is most apparent, and which can be assessed and measured across the whole port­folio of projects supported by the Fund. In this manner, the CFC seeks to have a clear portfolio-wide view of its contribu­tion to achieving the SDGs.

The five core CFC SDGs[1] are: 

The slowing poverty reduction progress since 2015 has been set back further by COVID-19 and the global extreme poverty rate rose in 2020 for the first time in over 20 years. Combined with other crises, such as rising inflation and the war in Ukraine, it is estimated that in 2022 an additional 75 million to 95 million people will be living in extreme poverty in 2022, compared to prepandemic projections. In response to the COVID-19 crisis, more than 1700 social protection measures (mostly short-term) were announced by 209 countries and territories. Still, by 2020, only 47% of the global population were effectively covered by at least one social protection cash benefit, leaving 4.1 billion people unprotected, the majority of whom are the poor and the vulnerable. The CFC contributes to SDG 1 by investing in businesses that improve people’s livelihoods throughout the supply chain, by among others, training and providing stable demand to smallholder farmers in developing countries.

Even before the pandemic, the number of people going hungry and suffering from food insecurity had been gradually rising since 2014. The COVID-19 pandemic has intensified the vulnerabilities and inadequacies of global food systems, adding hundreds of millions more people to the chronically undernourished, making the goal of ending hunger a more distant reach. In 2020, between 720 and 811 million people in the world were suffering from hunger – 161 million more than in 2019. In the same year, over 30% – a stunning 2.4 billion people – were moderately or severely food insecure, lacking regular access to adequate food. This represents an increase of almost 320 million people in just one year.

 

Still, the world can produce sufficient food to feed everyone adequately. Agriculture, forestry, and fisheries can provide nutritious food for all and generate decent incomes, while supporting people-centered rural development and protecting the environment. The CFC supports projects that work to increase smallholders’ productivity, through technical assistance, access to proper inputs, improved infrastructure, and access to credit. CFC also supports projects that build farmers’ resilience to external risks. In these ways, the Fund helps to ensure that people get access to safe, nutritious, and sufficient food all year round.

The world is not on track to achieve gender equality by 2030 and has been pushed further off track by the socioeconomic fallout of the pandemic. Women and girls remain disproportionately affected, struggling with lost jobs and livelihoods, derailed education, increased burdens of unpaid care work and domestic violence. And despite women's effective and inclusive leadership in responding to COVID-19, they are excluded from decision-making positions.

 

Women play a crucial role in agriculture, especially in developing countries, where they comprise around 43 per cent of the agricultural labor force. Gender disparities, however, are evident in unequal access to productive resources. For example, land rights, access to technology, access to finance and income distribution in commodity value chains are most often not gender neutral. By prioritizing the support of projects promoting gender equality (e.g. women-led enterprises, high percentage of women among the beneficiaries of the project, creation of employment for women, high number of women in senior positions, among others), the CFC contributes to the advancement of SDG 5.

Prior to the onset of the pandemic, informal employment represented 60% of global employment. COVID- 19 containment measures and mobility restrictions prevented labour reallocation to informal employment. Rather than becoming unemployed or shifting to informal jobs, as in previous crises, laid-off employees and self-employed workers alike left the labour force. A disproportionate impact on informal workers was reflected in a decline in the informal employment rate in some countries at the height of the crisis, which has left informal workers and their families in a highly precarious position, exposed to sudden income losses and heightened risks of falling into poverty. In 2021, the global unemployment rate declined slightly to 6.2%, which is still well above the pre-pandemic rate of 5.4%. The ILO projects that unemployment will remain above its 2019 level until at least 2023.

 

Moreover, in many countries having a job does not guarantee the ability to escape from poverty. According to the ILO, almost 1.4 billion workers are estimated to be in vulnerable forms of employment. Those workers are more likely to be informally employed, have fewer chances to engage in social dialogue and are less likely to benefit from job security, regular incomes, and access to social protection. The CFC supports projects that generate employment with decent working conditions. By investing in small and medium-sized enterprises, the Fund helps to create several quality jobs, promoting inclusive and sustainable growth, in the world’s most vulnerable regions.

Before the pandemic hit, modest gains had been made in, for instance, reducing income inequality in some countries, continuing preferential trade status to lower-income countries, and reducing transaction costs of remittances. However, inequality persists in its various forms, whether income, wealth, opportunities, or other dimensions. Moreover, the pandemic has exacerbated existing inequalities within and among countries and hit the most vulnerable people and the poorest countries hardest. The CFC invests in projects in the world’s most vulnerable regions, helping people to earn a fair share of the global value created from commodities, thereby reducing inequality.

Measuring CFC impact across its portfolio

 

Despite its broad scope, it can be challenging to report Impact Measurement using the SDG framework. Since the monitoring of the targets is done on a national and on a global level, it may be challenging to attribute the contribution of a particular organization in advancing specific goals. Currently, there is no official guideline for the private sector and the civil society to report on their work related to the SDGs.

To overcome these difficulties, it is necessary to convert the SDG framework in specific indicators. Having considered the different options available, the CFC decided to adopt the Impact Reporting and Investment Standards (IRIS+) as its main reporting tool. IRIS+ is a catalogue that pulls together the most useful metrics from across the impact investing industry, making it easier to create a system to measure performance. It is managed by the Global Impact Investing Network (GIIN) and is the most used tool for impact investors to report on their impact.

After an in-depth assessment, the CFC has mapped the most relevant IRIS+ metrics with its core SDGs. As result, the CFC has determined the main indicators to be monitored by its projects in line with its mission.

 

Implementing the impact strategy

 

The development impact is one of the major criteria for selection of interventions receiving CFC support. Each project received through the Open Call for Proposals is expected to provide indicators of its intended impact. Starting with the 13th Call for Proposals in 2018, the CFC asks all proponents to present the estimated impact of their projects using the SDG framework. More specifically, they are required to describe how their project would contribute to the advancement of the core CFC SDGs. The proponents need to express the target impact indicators for each year of their projects and their baseline values using the IRIS+ metrics. They are also expected to provide details of how project activities contribute to the core SDGs targeted by the CFC. Projects which are unable to provide such information are normally not recom­mended for further consideration during the screening stage.

The impact indicators are checked by the CFC at the due diligence stage and are included in the project agreement between the CFC and the project proponent. The project agreement assures that the project will aim to achieve the intended outcomes and will report specific impact indicators, as agreed with the CFC. This information is provided to the CFC on an annual basis. Consistent and regular impact reporting alongside with financial indicators is a distinguishing feature of the CFC Impact Strategy.

The CFC collects diverse information regarding the impact of its projects over their life cycle while seeking to minimize the overhead burden on the operational, organizational, and human resources. The CFC follows a robust approach covering impact indicators and impact measurements requiring project proposals to include:

 

  • Target Indicators: The indicators should clearly demon­strate the intended level of achievements for each year of the project. The CFC expects that these will be systemically assessed and reported by the proponent, demonstrating that the implementation plans are feasible and not based in unrealistic assumptions;
  • Baselines: Baseline levels for impact indicators should be included in the proposals. The CFC reviews and compares baseline data with other sources, e.g. similar projects;
  • Data on achievements: The CFC systematically follows up the achievements of its supported projects to ensure timely and accurate reporting of the progress and impact. The follow up procedures are introduced, and project propo­nents are informed of the consequences of incomplete or late reporting on the implementation and eventual success of the project;
  • Monitoring and Evaluation: Selective monitoring and evalu­ation for individual projects may be included but is generally constrained by the financial and human resources made available by the project proponents. The current focus of the CFC is on developing a practical approach for monitoring and evaluation across the entire CFC project portfolio; 
  • Financing of Project: Projects receiving CFC support frequently include larger financial institutions as co-financiers. Combining resources and technical facilities of the CFC with co-financiers enables more intense and detailed impact monitoring. 

 

Social and Environmental Management System

Besides measuring the positive impact its projects help to create the CFC understands the importance of also considering the potential social and environmental risks of its operations. For this reason, the CFC has partnered with the Social Finance Programme of the International Labour Organization to develop its Social and Environmental Management System (SEMS).

Such systems are designed to enable a financial service provider to identify social and environmental risks associated with a particular transaction and take this into account when deciding whether or not to provide financing as well as identifying opportunities to improve social and environ­mental performance.

The CFC has always considered the Environmental, Social and Governance (ESG) risks when assessing a project. This analysis is included in the entire process of evaluating a new proposal, from the initial screening of the applications received to the ongoing monitoring of an active project. However, recogniz­ing the great importance and complexity of this topic, the CFC decided to take a step further, aligning its procedures to the current best practices from the impact investment industry, by developing its own SEMS.

With the support of the ILO, the CFC has developed several tools and procedures to consider systematically the social and environmental risks of potential projects. These tailor-made tools take into account the specific set-up of the CFC, the sectors it operates and cover all steps of CFC investment process. The main outcome of this project was the approval of CFC’s Sustainability Policy by the Executive Board, setting the standards for the social and environmental risk analysis of CFC operations.

 

Impact measurement: an on-going work

The CFC recognizes that the impact investing sector is still developing a proper and robust system to allow all investors to manage and monitor their impact. The sector has actively taken up the challenge of measuring social impact and has made good progress in recent years, with the emergence of new tools, frameworks, and standards. However, there is still a long way to go until there are agreed parameters as com­prehensive and reliable as those used for risk and return on the traditional financial market.

The CFC acknowledges these limitations and tries to give its contribution for the sector to progress towards a robust impact management practice. In this regard, the Fund engages with several relevant stakeholders in field and tries to keep up to date with the sector best practices.

For its own impact management practice, the CFC under­stands that an interpretation of the impact metrics is best complemented with an analysis of the context in which the project operates, to provide a more complete picture of social performance. Standalone numbers cannot by them­selves indicate positive or negative social value, or necessarily be compared across companies or products. That is why the Fund also builds close working relationships with the projects and intends to eventually carry out more detailed qualitative and quantitative studies on a sample of investments. This combined approach is the basis from which the Fund can communicate a credible story of its SDG impact. Also, as the Fund learns from these experiences it will be able to invest more effectively by identifying and assessing sectors, regions and financial instruments which are instrumental in creating and having more practical impact.

Photo: Farmers harvesting rice. © FAO/Hoang Dinh Nam

At the time of writing this Annual Report, not all projects have been able to provide the updated impact report for the final year 2021. Nonetheless, it is clear that the effects of the COVID- 19 pandemic were still felt across the entire CFC portfolio. Most projects experienced disruptions on their value chain, such as logistic challenges and lower demand. As a result, some com­panies needed to lay off some staff and decrease the volumes bought from smallholder farmers. Even so, on a portfolio level, CFC operations overall show a greater impact in 2021 when compared to previous years, with a new record in the number of farmers reached.

A brief analysis of the main indicators corresponding to the SDGs framework is presented below:

In total, around 415,000 people stand to benefit from the loan-based interventions currently financed by the CFC. These beneficiaries are in most cases smallholder farmers, living below the poverty line of USD 1.90 a day, as defined by the World Bank. Through the initiatives supported by the CFC, these people will benefit from an income increase, helping many of them to step out of the poverty line. Although not all projects have reported the data, the additional annual net income for the beneficiaries is estimated to range from USD 100 to USD 5,234 per annum. For the year of 2021, the number of people directly benefiting from the projects supported by the CFC reached 76,300. The additional net income for these beneficiaries goes up to USD 263 per year.

The additional income received by the beneficiaries can have a great impact in achieving food security, contribut­ing to the SDG 2. Also, several projects supported by the Fund help to increase the area of cultivating land and the productivity levels of the crops being cultivated by the smallholder farmers, which could also positively impact the SDG 2. In total, it is expected that 80,658 hectares of additional land will be cultivated from the interventions financed by the CFC. For the year of 2021, 16,000 hectares of new land were cultivated and the total area of land under cultivation during the year was 52,000 ha.

The CFC encourages its projects to give special attention for vulnerable groups. In particular, several projects supported by the fund contribute to women empowerment, providing them training, employment opportunities, access to new markets and others. The projects are expected to report the percentage of female beneficiaries on their projects, the total jobs created for women, share of women in senior positions and of women ownership, among other gender-related metrics. On the current portfolio, around 31% of the beneficiaries are expected to be women. In 2021, this figure reached 63%. Also, 455 women were receiving full-time employment opportunities from the projects supported by the CFC.

The projects supported by the Fund expect to create 5,619 new jobs, giving employment opportunities to people living in vulnerable conditions. The annual income per job created ranges from USD 900 to USD 12,542. For the year of 2021, the projects supported by the Fund were providing good employment opportunities for 1,382 permanent and 3,724 temporary employees.

The CFC supports interventions in developing countries, giving special attention to projects targeting vulnerable regions and countries, such as the Least Developed Countries (LDCs). On the current portfolio, the Fund has 10 projects operating in LDCs, contributing to the economic growth, more value addition and exports increase of these countries. The Fund also targets interventions impacting vulnerable groups, such as people living below the poverty line, contributing to greater equality within the countries.

Photo: Local produce on sale at an open-air market in Savannakhet. © FAO/Roberto Grossman

Shalem is on a mission to do business as well as increase the prosperity of smallholders. Working in partnership with, inter alia, the Common Fund for Commodities from 2017 to 2022 it transitioned from a grain aggregator to an added-value manu­facturer, empowering it to deepen its support for farmers. We take a closer look at what’s driven the Shalem success story.

As a secondary school student Ruth Kinoti began her school day by carrying a bag of cereals (Maize beans or sorghum) to the local market. Selling them was the only way to pay for her bus ticket to a boarding school far away from her home. Her educa­tion relied on the success of her parents’ smallholding, not just for the bus fare but for her school uniform and fees. Like many girls of her age, she was one bad harvest away from losing her education. That experience has left an imprint. It’s one of the reasons why she founded Shalem and is committed to using her business to reduce the insecurity and vulnerability smallholders still face today. What started as a grain aggregating company, buying sorghum from smallholders to supply to local schools, is now a manufacturer and processor of scale. In 2021 it sup­ported more than 40,000 smallholder farmers, boosting their incomes by an average of USD 240 each year. Vital money that puts food on the table, funds schooling and has a positive ripple effect throughout the community.

Not only is Shalem delivering price stability for smallholders by linking them to larger, more consistent markets, it is also providing affordable nutritional food for some of the poorest people in the region. Ruth’s determination and entrepreneurial spirit have driven the growth of the business, with the backing of the Common Fund for Commodities (CFC) accelerating her ability to reach larger numbers of people. “The CFC transformed our business from an aggregator to a manufacturer. They trusted us when we didn’t have collateral to afford the financing for a factory. Without them it would have taken another ten to fifteen years to get to where we are today,” she says.

The relationship began in 2017 when the CFC and its co-financier, the Dutch Trust Fund, agreed a loan of USD 610,000 with Shalem. The funds were used to build a storage facility for farmers’ produce, so that it can be stored after a good harvest until demand and prices rise. The money has also given Shalem the means to build a processing factory, including food fortifi­cation with much needed minerals and vitamins, which opened in 2019, expanding its capacity to deliver the value-added products that now account for 70% of its revenue.

The factory has been truly transformational, extending Shalem’s reach across the Upper Eastern region of Kenya and enabling it to provide a year-round market for more smallholders, through products such as its Asili Plus flour. “Asili is a fortified flour for low-income consumers. The formula allows us to use a different mix of grains, depending on what’s available, without compromising on the quality which creates a stable demand for farmers and a nutritious product for consumers,” explains Ruth.

This combination of innovation, purpose and economic viability, was a compelling one says CFC project manager, Sonja Timmer: “There are four hugely impressive elements to Shalem. They cater to a low-income demographic, they have transitioned the business model from trading to processing and increased price stability, they’ve added value to their products through fortification and they’ve reached out to remote small­holders, particularly women, and boosted their incomes.” The success of this approach is clear in the figures for 2021, the first year when the benefits of the factory really started to be felt. As a result of their growth, Shalem has been able to repay the CFC’s investment and build the credibility they need to access funding from more risk averse local banks.

Beneath the headline figures – the thousands of smallholder suppliers, the rising premiums being paid for their crops and the growing numbers of low-income consumers accessing Shalem products – there are other positive stories unfolding too. For example, 74% of those who sold produce to Shalem were women, who often face the greatest barriers to accessing reliable markets. Shalem has also trained about 20,000 people in some of the areas where it required climate resilient growing techniques. In short, historically underserved people are being given the tools to build reliable, sustainable businesses.

Of course there are challenges. The COVID-19 pandemic had a dramatic impact on several of Shalem’s key markets. As restric­tions were introduced, bars and restaurants closed. In turn breweries reduced production and the demand for sorghum plummeted, leaving Shalem with hundreds of tons of the grain and no one to sell it to. The CFC stepped in with an additional loan, under its COVID-19 Emergency Liquidity Facility, to help it weather the storm so that she can continue to pay the small­holders. This loan helped Shalem to regain its fundamentals and thereby bounce back quickly.

The steep rise in commodity prices that followed the pandemic is also causing a challenge. Ruth points out the price of a bag of maize has almost doubled in the past year, which is not an increase she can pass on to consumers with limited purchasing power. Another big worry for her is the anticipation of more effect of climate change. “Climate change has its effects on our farmers and their ability to continue to live productive lives in rural areas of East Africa.” states Ms Kinoti.

The CFC transformed our business from an aggregator to a manufacturer. Without them it would have taken another ten to fifteen years to get to where we are today.”

Still, she remains positive and has big plans: “After we have paid off our bank loan, we want to expand our storage capacity and double our production facility, so we can add even more value to our products. There is a good market for wheat products such as pastries and bread, and we want to move more into precooked foods. If we have good products that are well priced, we’ll find the market.”

Given Shalem’s success so far, her ambitions aren’t misplaced. But aiming high, doesn’t mean Shalem will lose sight of its origins and core purpose. “My background as a smallholder farmer and my experiences as a child will always influence how we do business,” she says. “A farmer can still bring a bag of maize on a motorbike, or five bags of sorghum on a donkey, to the factory and we will weigh it and pay.” It’s this accessibility that makes it a lifeline for many smallholders, boosting the prospects of them and their children. Which takes Ruth back to the little girl selling a bag of grain to pay for her bus fare, “It is very exciting seeing the girls going to school now, knowing they are not going through what we did.”

The success of a company is defined by a number of things. And while there is no secret ingredient to it, what significantly increases chances of long-term success, is the company’s ability to see and foresee where the world is heading, and embrace it.

Kennemer Foods International is a well-established agribusiness company in the cocoa sector, both in the Philippines and abroad. Their focus on training and supporting smallholder farmers, whose produce they have been sourcing and trading since 2010, has both been the key to their success and what has kept them solidly grounded.

The Common Fund for Commodities has been supporting Kennemer since 2017 with a loan of USD 1.4 million. Kennemer’s reliability as a company is what attracted the CFC in the first place, but it’s their vision what continues to appeal to us. And now Kennemer would like to build on this success and be ready to carry its part of responsibility for the future of the cocoa sector.

“Sustainability is in our DNA,” explains Jonna Bickel, Vice President Farmer and Community Programmes. “For us, the fact that consumers are increasingly asking to know if what they are buying is sustainable, both socially and environmentally, doesn't come as a surprise.”

“Cocoa as a product needs healthy and nutritious soil to grow,” continues Jonna. “Taking care of the local environment, planting trees, and adopting conservation measures are all things that we have been doing for a long time.” This is crucial now more than ever, as farmers are increasingly affected by the changing climate. Unpredictable climate events, like tropical storms, are becoming more frequent in Mindanao – where most of the farmers live – followed by long periods of dry weather.

Farmers are the first to confront climate change. “Farmers experience climate change first-hand so they know what it is about,” explains Jonna. “What they don’t know is how to be more resilient to climate change. And that’s where we decided that we could make a difference.” The first step for Kennemer was to turn their existing reforestation efforts into a programme that could benefit the farmers as well as the environment and that, most importantly, they had the skills to monitor.

Photo: Kennemer

After two years of baselining and preperation, Kennemer launched MinTrees, a reforestation programme designed with 2000 smallholders from rural Philippines. Through the pro­gramme, which is now in the final stages of verification under the Verra voluntary carbon standard, Kennemer will soon be able to issue carbon credits.

CFC’s support came at the right time to put the innovation on a firm footing. “What we were missing were the skills to monitor a programme of this kind and to calculate the amount of carbon credits we could issue based on the trees we were planting,” explains Jonna. “It’s been a journey that couldn’t have been pos­sible without the expertise we brought on board. Going through this process with the farmers means that they are now much more aware of the role they can play in fighting climate change.”

On top of our conservation and reforestation activities, we work alongside indigenous and local communities to create community-based agriculture opportunities.”

And their efforts didn’t stop there. Well aware that reforestation alone wasn’t going to be enough to preserve the local eco­system, Kennemer worked on a REDD+ project proposal with 13 communities in Davao Oriental, a rural province southeast of Mindanao. The project, the very first REDD+ project in the Philippines, is focused on landscape conservation and is developed on four pillars: forest conservation, reforestation, livelihoods and community welfare. Each pillar contributes in different ways to conserving the local ecosystem, both for the communities who live there and for the environment itself.

“On top of our conservation and reforestation activities, we work alongside indigenous and local communities to create community-based agriculture opportunities.” explains Jonna. “There is a lot of land in the region, but very few employment opportunities. Too often companies come in and push com­munities out of their land, depriving them of their main source of livelihood. We tried to create a programme that worked with communities rather than against them.”

The last pillar - happiness - is implemented through the devel­opment of social programs, such as health programs, or by offering scholarships in partnership with local universities. The preservation of community spiritual and cultural sites is another example. “These activities are driven by the communi­ties, and are based on what their needs are, on what they think contributes to their wellbeing.” concludes Jonna.

Whether Kennemer’s ability to foresee and embrace change will be their key to long-term success, only time will tell. It’s undeni­able, however, that their vision goes beyond their business. “Cocoa is an agri-commodity where poverty is much more entrapped globally and as such, CFC, like many impact funds, were on the lookout for precedents of high impact projects bridging sustainability and environmental safety. We, therefore, appreciate the innovativeness of Kennemer, which is showing how farmers can play a role in fighting climate change while benefiting from the environmental impact they are creating. We are even happier to partner with such innovative program that also sets in a kind of ‘green recoveries’ that we badly need following the COVID-19 pandemic recession,” says CFC’s Managing Director H.E. Sheikh Mohammed Belal.

What Kennemer is creating is a hybrid model where profitability, social responsibility and environmental sustainability perfectly blend into developing products and programs that encompass the complete agricultural value chain from planting materials, training, agri-technology to the market of carbon credit. We hope more companies will follow the example of Kennemer to be an innovation and inspiration for all commodity value chains globally.

Photos: Elvin Alaniz and Janira Centeno, LIFT Agronomists. Mercon

Coffee brings more than a sensorial experience to its consumers – it also carries a history of environmen­tal and social impact in coffee growing communities. This is an element that Mercon Coffee Group has put at the core of its activities since its establishment in 1952. As a global green coffee supplier, Mercon has developed a sustainability strategy, for which the LIFT multi-services Program for farmers has been essential. Based on three pillars – Profit, Planet, and People – LIFT is an integrated system of service tools supporting farmers to grow high quality coffee, while ensuring that their livelihoods and the environment benefit from these activities.

Measurable and accountable impact is at the core of LIFT’s innovative approach. With 18 practices that were developed around the three pillars, the LIFT Index assesses the work of each farmer and eventually assigns them a score. While three of the practices – no child labour, no discrimination, fair and equitable labour conditions – are mandatory, other practices are evaluated with different weights. Through its LIFT services, Mercon aims for farmers to reach minimum 80% in the LIFT Index within the first three years of program participation.

Thanks to LIFT, Mercon is the first green coffee supplier with a sustainability-linked revolving credit facility, meaning that the loan links the impact performance of LIFT with the interest rate of the facility. By improving the impact Key Performance Indicators (KPIs), Mercon can qualify for an interest margin reduction. Savings from this are invested by Mercon back into LIFT. In contrast, if no KPI is achieved, an interest margin addition is applied to its loans and the increased revenue is invested by the financial institutions into a selected charity. To maximize the transparency of its pro­cess, an external auditing company verifies Mercon’s KPIs.

Embracing this innovative system, the Common Fund for Commodities (CFC) became a lender to Mercon in 2021. The CFC loan of USD 5 million supports Mercon with funding short-term advances to smallholders. In the long run, the CFC hopes that LIFT can serve as a blueprint for other businesses driven by accountable environmental and social impact.

Ever since it was established in Nicaragua in 2016, LIFT has grown to the point that it now involves 4,200 farmers from Nicaragua, Honduras, Guatemala, Brazil, and Vietnam. After 3 years of joining the program, LIFT farmers from Nicaragua are expected to receive an average increased annual coffee income (average simulation is USD 6,706.8 for LIFT farmers, compared to non-LIFT farmers who can earn as low as USD 1,474.2). When taking the Living Income benchmark of USD 5,125.68/year for a family of 4 in Nicaragua – as calculated by the Living wage coalition – participating in the LIFT program is an opportunity for improving livelihoods and lifting households above the Living income benchmark reference. Strong relationships and constant communication between LIFT farmers and agrono­mists have been instrumental in achieving such long-term, positive results. Recently, LIFT by Mercon has been recognized by the Global Coffee Platform as 2nd party scheme equivalent to the Baseline Coffee Code v1.2. This means LIFT is now eligible for GCP Roasters and Retailers Reporting on Sustainable Coffee Purchases! So how does this journey start?

Now my children oversee everything related to farm certification, my wife keeps the activities records, while I supervise the field activities. With LIFT we know that being a coffee producer is more than just producing coffee; here we are all united and we all get benefits.”

Photo: Norlan Palacio, LIFT producer. Mercon

To ensure the best services to their smallholder farmers, LIFT agronomists receive trainings first. At the beginning of every year, they assess their knowledge on different issues and strengthen it accordingly. Internal trainings are provided on different topics by internal and external experts on a range of topics like farm management, best agricultural practices, regenerative practices, certification, gender equity, and farm planning. Webinars are also held to keep up with the development on certain issues such as nutrition and integrated pest management.

Once they master their skills, agronomists move onto training producers through a result-oriented, personalized and practical approach. Accompanied by the producer or a designated person, the agronomist conducts a complete tour of the coffee plantation and determines the farmers’ previous knowledge of farming practices – a crucial starting point that will shape the personalized farm management plan and the technical assistance to be delivered.

“The best way to do this is to learn by doing. This is why we start with the participants’ prior knowledge and experience, in a way that we build the knowledge or practice we want to instil in them”, explains LIFT agronomist, Elvin Alaniz.

During this visit, farmers share their doubts and discomforts, and agronomists identify the phenological stage of the crop and areas for improvement, after which technical recommendations are provided. In addition, farmers and agronomists regularly communicate on the phone, which allows for timely and person­alized assistance, fostering their trust relationship.

Over time, this personalized approach has proved to be successful. As Elvin observes, “producers have improved their abilities in managing their plantations” thanks to better record keeping and alignment with the LIFT guidelines. The training has further enabled farmers to make progress on environmental issues, specifically in rational agrochemicals management and use of fertilizer, ultimately enhancing productivity.

“Integrated crop management has really helped me, especially by using organic soil amendments”, details Norlan Palacio, a Nicaraguan LIFT farmer who joined the program in 2016 – his motto is “Healthy soil, plants more productive”.

The best way to do this is to learn by doing. This is why we start with the participants’ prior knowledge and experience, in a way that we build the knowledge or practice we want to instil in them”,

Not only has the technical assistance improved productivity, but it has also kept the harvest consistent, stabilizing incomes. Emilseades Meza, a LIFT farmer since 2017, reports “before joining LIFT, coffee yields could be high one year, but very low the following one”.

A unique feature of LIFT is its focus on developing a wide range of skill sets. In the second year of the curriculum, producers receive financial education, helping them manage the farm better and involve their families. “Now my children oversee everything related to farm certification, my wife keeps the activities records, while I supervise the field activities”, says Norlan. “With LIFT we know that being a coffee producer is more than just producing coffee; here we are all united and we all get benefits. And the major outcome we see is on the community, something we didn’t have before”.

Engaging with LIFT, therefore, strikes as something more than a mere transfer of knowledge and skills. It’s about providing business services and developing a relationship around trust and support, wherein farmers are proud to be part of this program. “Working together, we grow together, and I feel confident to be part of the LIFT program”, says LIFT farmer Donald Blanco, father of three children.

Impressive progress has been made through LIFT on all three pillars – and this comes a long way. According to agronomists Janira Centeno and Elvin, the Productivity pillar is the most challenging to achieve results for. In the short term, productivity depends on the economic situation of producers, who are aware of the benefits of adopting certain practices but struggle to boost the nutrition of their coffee plantation. The main reason behind this limitation is the lack of legal land owner­ship, consequently hampering farmers’ access to finance that helps improve farm management. Besides technical assistance, productivity requires a socio-cultural ecosystem too.

With LIFT, Mercon demonstrates how a business can grow alongside its farmers through a circle of prosperity. The impact achieved with the program speaks volume of the potential of a company committed to both its people and the environment – a key potential in a world where transparent and sustainable value chains are being increasingly asked for. To this end, the CFC is excited to have recently extended its collaboration with Mercon.

“The CFC works to address the imbalance in the distribution of bargaining power, where coffee producers are the weakest participants in the value chain, keeping their prices consistently low. However, with LIFT, coffee producers not only found a way out, but they also got much needed knowledge and assistance to address the downward price spiral” states Ambassador Sheikh Mohammed Belal, Managing Director of CFC. He also hopes that LIFT may inspire others in the coffee value chain to adopt such innovative business models, ensuring that financial returns always go hand in hand with social and environmental impact.

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