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UNCTAD/IISD Sustainability in the Coffee Sector:  Exploring Opportunities for International Cooperation---Assessment and I...
Credit or Grant? <ul><li>Credit appropriate for commercial activities (production, trade, etc.) </li></ul><ul><li>Grant mo...
Objectives of Commercial Credit <ul><li>To facilitate sustainable access (and at better terms) to investment, pre-harvest ...
Objectives of Development Financing  <ul><li>Institutional development  (grants) </li></ul><ul><ul><li>Strengthening coops...
Coffee Sustainability and Finance:  Possible Linkage <ul><li>Most small farmers have little to no access to finance partic...
Rural Finance in Developing Countries <ul><li>Faces many challenges: </li></ul><ul><li>Local banks reluctant to lend to ag...
Rural Finance in Developing Countries <ul><li>Some new models/approaches are evolving based on: </li></ul><ul><ul><li>Rura...
Production and Trade Finance for Sustainable Coffee
Coffee Financing <ul><li>Investment finance---very scarce in  most producing countries </li></ul><ul><li>Production financ...
Sources of Finance <ul><li>Investment finance:   local banks, some DFI </li></ul><ul><li>Production and trade finance:   l...
Challenges in Production and Trade Finance <ul><li>Is money availability the main problem? </li></ul><ul><li>OR meeting th...
Ideas to Increase Credit and Improve Access <ul><li>Better collateral---e.g. sales contracts, long-term contracts, etc. </...
Ideas to Increase Credit and Improve Access  <ul><li>Support and training for financial institutions to set up appropriate...
Development Finance for Sustainable Coffee
Developmental Grants and Loans <ul><li>Various developmental grants or loans exist to promote sustainable coffee productio...
Challenges in Development Finance <ul><li>Is money availability the main problem? </li></ul><ul><li>OR </li></ul><ul><ul><...
Role of a Partnership <ul><li>Should a partnership create and manage a central/global sustainable coffee fund? </li></ul><...
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Panos Varangi: Senior Economist at the World Bank (334 kb)

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Transcript of "Panos Varangi: Senior Economist at the World Bank (334 kb)"

  1. 1. UNCTAD/IISD Sustainability in the Coffee Sector: Exploring Opportunities for International Cooperation---Assessment and Implementation Geneva, Switzerland, December 8-9, 2003 Financing Sustainable Coffee Panos Varangis, Renate Kloeppinger-Todd, Ulrich Hess and Bryan Lewin The World Bank
  2. 2. Credit or Grant? <ul><li>Credit appropriate for commercial activities (production, trade, etc.) </li></ul><ul><li>Grant more appropriate for developmental purposes </li></ul><ul><li>No financing to be provided on concessional terms (no interest rate subsidies or forgiveness of principle) </li></ul><ul><li>A financing package, however, could consist of a grant component (equity) AND a loan on market terms, preferably from different sources </li></ul>
  3. 3. Objectives of Commercial Credit <ul><li>To facilitate sustainable access (and at better terms) to investment, pre-harvest and post-harvest financing </li></ul>
  4. 4. Objectives of Development Financing <ul><li>Institutional development (grants) </li></ul><ul><ul><li>Strengthening coops, producer organizations, sector institutes, etc. </li></ul></ul><ul><li>Promotion of sustainability through TA (grants) </li></ul><ul><ul><li>Technology improvements, quality enhancement, market intelligence, promotion, etc. </li></ul></ul><ul><li>Product diversification (mixture of grants/loans) </li></ul><ul><ul><li>Promote higher value coffee products, other non-coffee production </li></ul></ul>
  5. 5. Coffee Sustainability and Finance: Possible Linkage <ul><li>Most small farmers have little to no access to finance particularly from formal sources </li></ul><ul><li>However, farmers of sustainable coffee are often better able to access financing </li></ul><ul><ul><li>Access to pre and post-harvest financing improves when it comes to sustainable coffees (e.g. higher prices, assured buyers and buyer quality, improved trade linkages) </li></ul></ul><ul><ul><li>Access to funds for institutional capacity building, technical/quality issues, etc. also improves when farmers commit to sustainable coffee practices </li></ul></ul>
  6. 6. Rural Finance in Developing Countries <ul><li>Faces many challenges: </li></ul><ul><li>Local banks reluctant to lend to agricultural sector: </li></ul><ul><ul><li>Too risky (weak collateral, price and weather risks, etc), better opportunities elsewhere </li></ul></ul><ul><ul><li>High transaction costs, particularly for small loans </li></ul></ul><ul><ul><li>Projects to be financed are not sufficiently profitable </li></ul></ul><ul><ul><li>Lack of know-how about agricultural lending </li></ul></ul><ul><ul><li>Bail-outs often create culture of non-repayment </li></ul></ul><ul><li>Highly selective lending (“cherry picking”) </li></ul>
  7. 7. Rural Finance in Developing Countries <ul><li>Some new models/approaches are evolving based on: </li></ul><ul><ul><li>Rural microfinance </li></ul></ul><ul><ul><li>Improved legal framework and innovative models regarding collateral </li></ul></ul><ul><ul><li>Potential for price/weather risk management </li></ul></ul><ul><ul><li>Supply chain financing </li></ul></ul>
  8. 8. Production and Trade Finance for Sustainable Coffee
  9. 9. Coffee Financing <ul><li>Investment finance---very scarce in most producing countries </li></ul><ul><li>Production finance (pre-harvest mainly for inputs)---available but limited to larger producers and some cooperatives </li></ul><ul><li>Trade finance (post harvest)---available but on a limited basis </li></ul><ul><li>Small producers are at a significant disadvantage </li></ul>
  10. 10. Sources of Finance <ul><li>Investment finance: local banks, some DFI </li></ul><ul><li>Production and trade finance: local banks, international banks, socially conscious investors, foundations/NGOs, traders, input providers, informal sources </li></ul>
  11. 11. Challenges in Production and Trade Finance <ul><li>Is money availability the main problem? </li></ul><ul><li>OR meeting the challenges of: </li></ul><ul><ul><li>Developing systems/approaches to make coffee producers “BANKABLE”? </li></ul></ul><ul><ul><li>Becoming the catalyst for the private sector to increase financing? </li></ul></ul><ul><ul><li>Creating longer-term financial viability (making a business case) for lending to farmers? </li></ul></ul>
  12. 12. Ideas to Increase Credit and Improve Access <ul><li>Better collateral---e.g. sales contracts, long-term contracts, etc. </li></ul><ul><li>Reduce risks---price, weather/yields, delivery---better risk management practices </li></ul><ul><li>Performance/reduce contract defaults </li></ul><ul><li>Stronger linkages between producers and the international trade/supply chain </li></ul>
  13. 13. Ideas to Increase Credit and Improve Access <ul><li>Support and training for financial institutions to set up appropriate systems (MIS, credit evaluation and monitoring) thus reducing transaction costs and portfolio risk </li></ul><ul><li>Assist farmers to become better producers in order to present “bankable” projects </li></ul><ul><li>Use of partial credit guarantees? </li></ul>
  14. 14. Development Finance for Sustainable Coffee
  15. 15. Developmental Grants and Loans <ul><li>Various developmental grants or loans exist to promote sustainable coffee production and marketing </li></ul><ul><ul><li>WB/IFC (GEF, JSDF, BioCarbon Fund, but also regular project finance) </li></ul></ul><ul><ul><li>Other multilaterals (CFC, FAO, IADB, UNCTAD, etc.) </li></ul></ul><ul><ul><li>Donor initiatives and projects </li></ul></ul><ul><ul><li>Private initiatives (e.g. ICP, and many others) </li></ul></ul><ul><ul><li>NGOs </li></ul></ul><ul><ul><li>Other sources </li></ul></ul><ul><li>Need for better coordination, explore synergies, and scale-up where successful models are found </li></ul>
  16. 16. Challenges in Development Finance <ul><li>Is money availability the main problem? </li></ul><ul><li>OR </li></ul><ul><ul><li>Creating and identifying projects </li></ul></ul><ul><ul><li>Improving coordination of various sources of financing and amongst various initiatives and projects </li></ul></ul><ul><ul><li>Scaling-up successful models </li></ul></ul><ul><ul><li>Ensuring longer-term sustainability and continuity of projects </li></ul></ul><ul><ul><li>Leveraging resources </li></ul></ul>
  17. 17. Role of a Partnership <ul><li>Should a partnership create and manage a central/global sustainable coffee fund? </li></ul><ul><li>OR focus on creating an Information and Coordination Clearing House that would help: </li></ul><ul><ul><li>Mobilize existing sources of funding </li></ul></ul><ul><ul><li>Identify projects </li></ul></ul><ul><ul><li>Improve coordination of various sources of financing and amongst various initiatives and projects </li></ul></ul><ul><ul><li>Identify and scale-up successful models </li></ul></ul><ul><ul><li>Ensure longer-term sustainability and continuity of projects </li></ul></ul><ul><ul><li>Leverage resources </li></ul></ul><ul><ul><li>NOT distorting financial markets </li></ul></ul>
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