Investing in Data Collection: An Information Exchange System for Risk Identification and Assessment

in Small Coffee Farms (IES4RIA)

The Case of Young Entrepreneurs in Coffee Farms of Northern Nicaragua

The Project The project consists of the investing in the design and implementation of an innovative Information Exchange System for Risk Identification and Assessment in Small Coffee Farms

• The IES4RIA will be based on a three years web-based application piloting project running on accessible platforms through cellular communications (App). – The IES4RIA will aim at the implementation of a holistic Risk

Management processing model within the small coffee production sub-sector

– The IES4RIA will target the stablishing of an Enterprise Risk Management Framework model within the small coffee producer sub-sector

Goals of the Project Short Term

• To create an interactive system for collecting preliminary data from cooperative or individual small coffee producers that enables policy makers with the early identification and assessment of risks through a holistic approach

Mid Term

• To provide decision makers the necessary inputs such as baseline, cyclical and critical data to approach the identified risks to come up with applicable alternative responses (treatments tailored to the sub-sector)

Long Term

• To give back small coffee producers validated methods and appropriate techniques to coping with risks through a holistic approach to Enterprise Risk Management

The Problems

Small Coffee farms as the preponderant livelihood

• Small family farms is the predominant form of ownership in coffee farms of the most productive zones for coffee plantations in Nicaragua

The business cycle and the side effects of commodity's low prices

• A significant amount of coffee producers are young farmers who migrate to neighboring countries in search for incomes during the less work intensive phase of coffee production

Inherent Industry Risks • A severe cyclical drought and a harmful phytosanitary condition is long

affecting the coffee plantations in the coffee producing area of northern Nicaragua

The Problems (Continued)

The subsector’s contribution ratio to GDP • Coffee production amongst the agriculture sector in

Nicaragua is the single crop that contributes the most to the GDP

Commodity Price Volatility

• The international market price of green coffee has dropped to levels that threaten the survival and profitability of these young entrepreneur business

The Needs

• The availability of tools and alternatives to young producers for coping with financial and operational risks during their seasonal job-driven migration and the downside of the coffee business cycle as this activity constitutes their main source of income.

• Addressing the consequences of coffee production hazard risks and the prolonged harmful phytosanitary condition that is affecting the coffee plantations in the coffee producing areas of northern Nicaragua

The Needs (continued)

• The assurance of the survival and continuation of traditional forms of ownership as they constitute the main livelihood for thousands of families within the most productive zones of coffee in Nicaragua

• Keeping the level of relevance of the Coffee production as sub-sector within agriculture in the GDP (strategic risks)

The Needs (Continued)

The creation of an information exchange system that identifies and assess the impact of positive and negative risks:

Hazard Risks

- Climate Conditions (Drought, Floods)

- Phytosanitary conditions of crops

- Operational Risks

- Production System & Processes (plant diseases)

- Quality Control

- Strategic Risks

- Systemic Risks (Inflation, GDP, employment mobilization etc.

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- Financial Risks

- Market Risks

- Local bank Interest rates

- Currency and Commodity price volatility

- Liquidity

- Credit Risks

- Sub-sector specific credit risk (Operational, Capital loans)

- Solvency

- Price Risks

- High prices of inputs

Project Scope • To design and deploy amongst risk beaten Small Coffee Producers

an interactive application that collects categorized information with the purpose of identifying, assessing and responding to risks :

- Hazard risks: Climatic and Phytosanitary loss exposures

- Operational risks: Farm location, capacity, resources, yields, Processes & Systems of production, Agricultural and phytosanitary practices

- Financial & Strategic Risks: Price drop, systematic risks

• To invest from a diverse source of funding in the creation of a Sub-sector Wide Enterprise Risk Management unit at a decision making level that identifies and assess Risk from a holistic perspective

Project Scope

• To lay the foundations for the creation of a sub-sector framework model that:

• Lead and establish accountability amongst producers

• Align and integrate the goals of the sub-sector with the national development goals

• Define the allocation of resources required to manage the framework

• Set the pathway for communication and reporting amongst affiliates and non-affiliates

Funding Mix • Since this initiative revolves around the development

of an inclusive innovation system within a struggling industry in the Private Sector, the proposed funding mix is a combination of the following sources:

– Cash and in-kind contributions from cooperatives and associates

– Sub-national public and private domestic resources • Local business partnerships (Banks, service providers)

• Public resource allocations from regional/national revenue agencies

– A concessional loan from a multilateral development bank

– Capacity building and technical assistance grants from Official Development Assistance

• this initiative revolves around the development of an inclusive innovation system within a struggling industry in the Private

Sector, the proposed funding mix is a combination of the following sources:

– Cash and in-kind contributions from cooperatives and associates

– Sub-national public and private domestic resources

• Local business partnerships (Banks, service providers)

• Public resource allocations from regional/national revenue agencies

– A concessional loan from a multilateral development bank

– Capacity building and technical assistance grants from Official Development Assistance

Funding Mix