Sustainable Coffee and Cocoa Supply Chains in Peru
Developing a credit risk and opportunity model applicable to Peruvian coffee and cocoa exporters
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Photo by Ana Labate on Freeimages.com
June 1, 2023
Biodiversity has a high economic value for Latin American countries, and in the case of Peru it is no different; the country significantly depends on its abundant natural capital for economic growth, development, and human well-being (see, for example, this IPBES report). Thus, it is no surprise that agriculture is an important sector for the Peruvian economy. Export-oriented commercial agriculture in particular, has experienced a remarkable increase in recent decades, led by the expansion of coffee and, more recently, by exports of non-traditional products.
What?
Nevertheless, financing agricultural businesses is one of the outstanding cross-cutting problems with an impact on all actors in the value chain. On the producer side, the scarce physical presence of financial establishments in Peru, high operating costs, and the absence of guarantees presented by producers explain why only 11% of the rural population has applied for at least one loan from a financial institution. On the banking side, the high transaction costs, the absence of guarantees, the relatively high level of delinquency and the perceived risk profiles of producers prevent a greater and better participation of traditional banks in financing this segment.
Therefore, the project “BioInvest”, commissioned by the German Federal Ministry for the Environment, Nature Conservation, Nuclear Safety and Consumer Protection (BMUV) and implemented by the German Development Cooperation (GIZ) and the Peruvian Ministry of Environment (MINAM), seeks to foster solutions to improve the conditions for impact investments in biodiversity-friendly business models, for example, in the coffee and cocoa sectors.
Why?
These sustainable business models will become more and more important over time, as global trade regulations are increasingly emphasising biodiversity aspects. For example, the European Union (EU) is currently in the process of adopting and/or implementing legislative proposals related to the supply chains of the EU economy, such as the EU Deforestation-free Products Regulations (EUDR). Given this context, it is crucial that coffee and cocoa producers in Peru follow high biodiversity standards so that trade between both parties can continue.
How?
To tackle these financing and sustainability challenges, Climate & Company is developing a credit risk and opportunity model that financial institutions in Peru can use to evaluate the compliance of Peruvian coffee and cocoa exporters with the EUDR and other (international) sustainability certifications.
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