Latin America’s coffee industry receives a much needed and strong dose of financing
IDB Invest Corp, a subsidiary of the IDB Group based in Washington DC, is providing up to USD $50 million worth of financing to Grupo Mercon. The deal aims to support Latin American coffee’s value chain, promote growth, and support economic recovery.
Since the coffee sector is facing real financial difficulties in Latin America, the project aims to provide liquidity to borrowers throughout the coffee value chain. This includes Mercon’s operations of origin, coffee production (whether from Mercon and/or from third parties) and its processing, to destination, logistics and commercialisation (mainly exports). One primary idea behind the project is to promote the growth of Mercon’s sales of coffee originating in five countries: Brazil, Colombia, Guatemala, Honduras, and Peru.
IDB’s investment, which is subject to optional incremental features, is part of a $500 million regional syndicated loan facility, structured, managed and administered by Rabobank, with prices linked to key sustainability initiatives, aligned with Mercon’s strategy of raising the standard of living of coffee-growing communities in the region. The financing consists of a revolving, uncommitted, short-term credit line linked to sustainability parameters of up to $50 million. The participation of IDB Invest is designed to support Mercon in ways which ensure the financing for its own operations, and primarily the financing of its own original activities.
This project will directly support small and medium coffee producers in rural Latin American populations, considering that over 90 percent of Mercon’s coffee suppliers are smallholder farmers. The investment will facilitate access to financing for producers to guarantee the sustainability of their businesses and protect jobs. This is decisive for reducing poverty and improving the quality of life in these communities, particularly at a time of limited liquidity due to the Covid-19 pandemic. Coffee is Central America’s second largest export, producing more than 10% of the coffee exported worldwide and generating around two million jobs in the region. Likewise, the project will promote climate-smart practices to reduce crop losses, improve efficiency and reduce greenhouse gas emissions.
The financing includes a discount based on compliance with sustainability performance indicators, helping Mercon’s LIFT program that is focused on supporting coffee producers to improve their productivity levels, incorporating sustainability practices together with the Semillas para el Progreso Foundation, which contributes to the general well-being of coffee-growing communities. IDB Invest will be the Sustainability Coordinator for the operation, alongside three other financial institutions: the World Bank’s International Finance Corp (based in Washington, DC); Rabobank, a 125-year-old bank based in the Netherlands, and ING Capital LLC, a bank based in Australia.
IDB Invest will fund, through technical assistance, Mercon’s LIFT program by supporting the pilot test of a price protection mechanism for coffee producers that will help them manage financial risks through financial risk management tools. In addition, IDB Invest will design tools that facilitate the implementation of a carbon credit scheme that results in economic benefits and helps large coffee roasters meet their carbon neutrality commitments. Both components of technical assistance will incorporate a gender perspective that will allow more LIFT program participants to be women.
IDB Invest is a member of the IDB Group, which is a multilateral development bank owned by national governments. Since it was founded more than four decades ago, IDB has been committed to promoting the economic development of its member countries in Latin America and the Caribbean through the private sector. IDB Invest finances sustainable companies and projects to achieve financial results and maximize economic, social and environmental development in the region.
Mercon Coffee Group is a vertically integrated global green coffee supplier that was founded in 1952 as a coffee exporting company. Headquartered in the Netherlands, Mercon is among the top ten coffee suppliers in the world, providing tailored services for customers in more than 60 countries. Mercon is a leader in terms of sustainability and drives a number of initiatives, including its LIFT program that focuses on innovation and prosperity in coffee communities around the world.
- Gordon Feller is a freelance writer based in California who travels the world reporting about innovations that can change our economies and strengthen small enterprises. He can be reached at [email protected].