Evalyasyon Risk yo nan Chenn Pwodwi Kafe nan Ayiti

Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Haiti Coffee Supply Chain Risk Assessment March, 2010 Public Disclosure Authorized Financed by: All ACP Agricultural Commodities Programme EUROPEAN COMMISSION ACP GROUP OF STATES Acknowledgments This report was prepared by the Agricultural Risk Management Team of the Agricultural and Rural Development Department of the World Bank. The work was financed by the European Commission’s All ACP Agricultural Commodity Program (AAACP). The team would like to acknowledge the support received from the National Coffee Institute of Haiti (INCAH), the Ministry of Agriculture, Natural Resources and Rural Development (MARNDR), and the IDB-financed Rural Supply Chain Project. The team would also like to express its sincere gratitude to all the stakeholders of the coffee supply chain (farmers, cooperatives, exporters, traders, NGOs, and representatives of Government organizations) who contributed their time, experience, and expertise during the Assessment. Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Table of Contents iii Table of Contents Executive Summary ................................................................................................................................................................................v 1. Background ..........................................................................................................................................................................................1 2. Coffee Supply Chain Risk Assessment: objective and methodology ...............................................................................5 3. Coffee supply chains in Haiti ...........................................................................................................................................................6 3.1 Artisanal coffee supply chain for domestic consumption....................................................................................6 3.2 Coffee supply chain for informal trade with the Dominican Republic ...........................................................6 3.3 Commercial/industrial coffee supply chain for domestic consumption.........................................................7 3.4 ‘Café pile’ supply chain for export.................................................................................................................................7 3.5 Specialty coffee supply chain .........................................................................................................................................8 4. Constraints in the coffee supply chain...................................................................................................................................... 11 i) Environmental Degradation (loss of tree cover)................................................................................................... 11 ii) Access to credit ............................................................................................................................................................... 11 iii) Poor infrastructure........................................................................................................................................................... 11 iv) Unsecured land tenure situation in certain areas................................................................................................. 11 v) Aging coffee trees............................................................................................................................................................ 12 vi) Aging farmers.................................................................................................................................................................... 12 vii) Structure of the ‘creole garden’.................................................................................................................................... 12 viii) Waning government interest....................................................................................................................................... 12 5. Major risks in Haitian coffee supply chain and capacity to manage those risks ....................................................... 12 5.1 Production Risks............................................................................................................................................................... 14 5.2 Market risks........................................................................................................................................................................ 16 5.3. Other risks .......................................................................................................................................................................... 18 6. Vulnerability to risks......................................................................................................................................................................... 19 7. Priority measures for risk management.................................................................................................................................... 20 8. Final remarks ..................................................................................................................................................................................... 22 References: ............................................................................................................................................................................................. 23 Annex 1. Haiti Coffee Supply Chain Risk Assessment Agenda ............................................................................................. 24 Annex 2. List of participants at the Haiti Coffee Supply Chain Risk Assessment Meeting: November 13, 2009 ........................................................................................................................................ 26 Annex 3. Glossary of key terms ..................................................................................................................................................... 27 Executive Summary v Executive Summary Coffee is an ecologically and economically significant crop for Haiti. It is not only the main source of income for more than 100,000 farmers, but the coffee ‘ecosystem’ also sustains a large part of the remaining tree cover (currently at less than 1.5 percent of land) of the country. Coffee production has been declining continuously since the 1970s and Haiti’s inability to arrest this decline poses serious challenges to the livelihoods of thousands of households and the fragile ecosystem of the country. The National Coffee Institute (INCAH) and the Ministry of Agriculture, Natural Resources and Rural Development (MARNDR) requested the World Bank to undertake a Risk Assessment to highlight and prioritize the main risks being faced by the coffee supply chain. This activity was financed by the European Commission’s All ACP Agricultural Commodities Program (AAACP). This report does not aim to detail the structural constraints impacting upon the Haitian coffee sub-sector. Instead, it describes the risks affecting the existing supply chain in terms of their potential impact and prioritizes the risks and areas requiring attention for risk management, investment, and capacity building. The coffee industry in Haiti consists of five dominant supply chains: a) artisanal coffee supply chain for domestic consumption (58 percent of total volume) ; b) commercial/industrial coffee supply chain for domestic consumption (6 percent); c) ‘café pile’ supply chain for export (6 percent); d) coffee supply chain for informal trade with the Dominican Republic (28 percent); and e) specialty coffee supply chain for export (gourmet coffee, fair trade, etc.) (2 percent). The Haitian coffee industry is constrained by significant systemic problems which have contributed to its decline over the years. Some of these major constraints include: (i) the structure of the coffee ‘creole garden’ which contributes to low on-farm coffee productivity; (ii) a land tenure system which inhibits long term investment; (iii) poor transportation and logistics infrastructure; (iv) limited access to credit and high interest rates; (v) aging coffee trees and farmers; (vi) waning government interest and support for the coffee sub-sector; (vii) lack of industry level coordination; and (viii) a lack of international and domestic promotion of the Haitian coffee industry. The assessment identified multiple risks confronting the different Haitian coffee supply chains, which were classified under the categories of production, market, and other risks. The following priority risks were identified through an extensive consultation process with all the major stakeholders of the coffee supply chain in Haiti: • Long term decline of national coffee production and the exodus of a number of major coffee sub-sector participants (producers, exporters, and traders) are leading to the long term decline of the coffee industry in the country. This decline poses the greatest risk to the continued existence of the Haitian coffee sub-sector. • Environmental degradation in coffee producing areas is both a cause and an effect of the decline in national coffee production volumes. • Significant coffee quality and yield reduction due to pest and disease, especially Scolyte (coffee berry borer) with annual infestation rates ranging from 20 to 50 percent and production losses between 15 and 20 percent. • Coffee exporting cooperative failures due to managerial, operational and financial problems could damage higher-value gourmet and fair trade coffee supply chains. Cooperative failure could also affect the domestic supply chains by reducing competition for coffee, thereby lowering farm-gate prices. vi Haiti Coffee Supply Chain Risk Assessment Haiti is reliant on trans-border trade with the Dominican Republic to sell 28 percent of its coffee production. A decline or collapse of this activity due to trade issues, political reasons, or a fall in demand from the Dominican Republic could lead to a substantial reduction in sales and subsequent decline in the farm-gate coffee prices in Haiti. Incentive systems in Haiti are poorly aligned to arrest the decline of coffee production. The rapid fall in production can be attributed to multiple factors including deforestation, replacement of coffee by more profitable cash crops (beans, cabbage, etc.), aging trees, aging farmers, disease attack, and lack of investment in the coffee crop. The wider constraints and longer term risks to the coffee sub-sector require a comprehensive plan to revitalize coffee production including the regeneration of plantations, national Scolyte control, supply chain integration, institutional strengthening, and environmental management (including reforestation) at the local, district, and national levels. This assessment was carried out in November, 2009 and does not reflect the conditions after the disastrous earthquake of January 12, 2010. Given the informal character of Haiti’s coffee supply chain, while the earthquake might have severed some links in the chain, it is not expected to cause major shock to production and distribution of coffee in the country. Even so, with increasing attention being paid to the revitalization of agriculture, this moment provides some concrete opportunities to place the coffee supply chain into a higher productivity path. Background 1 1. Background Haiti, with 9.8 million inhabitants, is the most populous Caribbean country. Despite the progress made in the recent past, decades of political instability, violence, and environmental degradation have left Haiti as the least developed nation in the Western Hemisphere and one of the poorest in the world. The past two decades have witnessed rapid migration in Haiti from rural to urban areas. While in 1990, 28.5 percent of Haitian population resided in urban areas, by 2010 this number will have increased to 49.6 percent.1 Although the contribution and significance of agriculture to Haiti’s economy has declined, it still accounts for 25.6 percent2 of GDP, remaining as an important economic sector, especially for rural areas where it still is the mainstay occupation for the majority of the population. Coffee is a culturally, economically, and ecologically significant crop for Haiti. French colonists started coffee plantations in the early 1700s and by the end of the 18th century Haiti had become a large coffee exporter. The decline of coffee that started in the early 20th century continues and Haiti, today, is a marginal producer and exporter of coffee. Land under coffee cultivation declined from 85,000 Ha in 1981 to 43,000 Ha in 2007 (Figure 1) while coffee production declined from a peak of 42,900 tons in 1980 to 21,000 tons in 2007.3 During the same period, the value of coffee exports fell from a peak of $90 million to $3.2 million (Figure 2).4 Coffee’s share of agricultural exports was 76.6 percent in 1979-81 but had fallen to 17.2 percent by 2002.5 Figure 1: Harvested Area (Coffee Green) in Ha (1977-2007) 90000 Harvested Area (Ha) 80000 70000 60000 50000 40000 30000 20000 10000 0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 (Source: FAO Stat) It is important to note that there are significant inconsistencies in data relating to coffee acreage, production, and exports. According to FAO Stat, the area under coffee cultivation in Haiti was 43,000 Ha in 2007. INCAH, however, cites several data sources which suggest that the area under coffee cultivation in 2007 was 100,000 Ha. 1 Source: UN Human Development Report (2009) 2 Source: World Bank: Haiti at a glance (2005) 3 Source: FAO Stat 4 Source: FAO Stat 5 Source: FAO Stat 2 Haiti Coffee Supply Chain Risk Assessment Similarly, FAO Stat reports that coffee exports in 2001 were US$5.4 million while INCAH reports that no coffee was officially exported in 2001(Figure 3). The Government of Haiti does not have a robust coffee data collection mechanism in place and therefore the lack of reliable numbers makes it difficult to quantify different aspects of the coffee supply chain in Haiti. Nonetheless, all empirical and anecdotal data points towards the rapid decline of the coffee sub-sector. Figure 2: Haiti Coffee Exports (1977-2007) Exports Value (US$ 1000) (Source: FAO Stat) 100000 90000 80000 70000 60000 50000 40000 30000 20000 10000 0 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 Figure 3: Official Coffee Exports from Haiti (1990-2006) Exports Value (US$ million) 30 25 20 15 10 5 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 (Source: INCAH) Background 3 Despite the decline of the sub-sector, coffee is still a major crop for Haiti. Two important considerations have prompted the Government of Haiti and donors to focus on it: 1. Ecological considerations: Haiti has less than 1.5 percent6 of its land under tree cover in comparison with the neighboring Dominican Republic, which has 28.4 percent. Haitian tree cover is almost exclusively in the areas of coffee production. Since the tree cover is an essential element of the coffee ecosystem, loss of tree cover leads to the destruction of remaining coffee plants. Household fuel wood requirements, charcoal demand, and the replacement of coffee in favor of other more profitable crops are some of the factors responsible for the loss of forest cover. Furthermore, the replacement of coffee with other crops increases the vulnerability of the fragile ecosystem, leading to increased soil erosion, mud slides, and further loss of tree cover. A reversal in the decline of coffee production is seen as an integral part of restoring the ecological balance and increasing the level of tree cover in Haiti. 2. Livelihoods considerations: Coffee was a major foreign exchange earner for the Haitian economy in the past, and as recently as 1980 it generated export sales of US$90 million. Although its role and contribution to the nation’s foreign exchange earnings has declined considerably in recent years (US$3.2 million in 2007), coffee still provides important income generating opportunities to a large segment of the Haitian population. According to various estimates, between 100,000 to 200,000 farmers are engaged in coffee cultivation in Haiti. Coffee is the main commercial crop for these farmers and the main source of income for their households. It also serves as a savings instrument for farmers, with the majority storing a portion of their coffee production to be traded during the lean season to meet household requirements. Given year-round strong domestic demand for coffee in Haiti, coffee can be readily sold and converted into cash. Besides coffee farmers, thousands of poor households are engaged in the trading and artisanal roasting of coffee, and a large portion of their incomes is derived from their involvement in the coffee sub-sector. All coffee grown in Haiti is of the Arabica family, of which the Typica variety accounts for 90 percent7 of planted coffee trees, the remainder being a mixture of other varieties such as Bourbon, Salvadoreño, Mondo Novo, Catourra and Catimor. Traditional varieties of Arabica, such as Typica, are shade coffee plants. Unlike most of the other coffee growing countries, there are very few commercial plantations (coffee estates) in Haiti. According to the National Coffee Institute’s (INCAH) estimates, only 15 percent of Haitian coffee is grown on large estates, while 65 percent of coffee farmers are small growers and another 20 percent are marginal farmers, as shown on Table 1.8 Table 1: Distribution of coffee farmers by land size Category Land size (in Ha) Percentage of production Large estate 7 to 10 15 Small farmers .5 to 2 65 Marginal farmers .25 to .5 20 (Source: INCAH) 6 Source: http://www.cbd.int/countries/profile.shtml?country=ht 7 Source: IDB (2006) 8 Source: INCAH 4 Haiti Coffee Supply Chain Risk Assessment The altitude of coffee plantation ranges between 400 meters in the North to 1,300 meters in Thiotte and Beaumont. Coffee plantations were historically more widespread in nine departments of the country. Currently, however, except for the areas of Thiotte, Baptist, Beaumont and Dondon where the density of coffee plantation is still high, coffee plantations in other areas is limited (Figure 4). Figure 4: Haiti Coffee Sector Map Field sites visited by the Coffee Supply Chain Risk Assessment Mission(Source: IDB) The majority of Haitian coffee is produced under the ‘creole garden’ agricultural system, whereby coffee is grown in a mixed tree cropping system. Coffee remains an integral part of the livelihood strategy of farmers in the mountainous regions of Haiti. While crops like maize, banana and yams are grown to meet household food requirements, coffee is the main cash crop for the majority of highland farmers. Besides being part of a diversified livelihood strategy, the ‘creole garden’ agricultural system is also considered ecologically sustainable and appropriate for the fragile ecosystem of Haitian highlands. However, despite many advantages, the ‘creole garden’ coffee system also imposes severe limitations on coffee production. The mixed cropping system impairs investment and systemic management of the coffee plants and, as a result, coffee productivity in Haiti is one of the lowest in the Latin America and Caribbean region. Coffee Supply Chain Risk Assessment: objective and methodology 5 2. Coffee Supply Chain Risk Assessment: objective and methodology Objective of the Study: To understand and better manage the risks facing the coffee supply chain in Haiti, the National Coffee Institute (INCAH) and the IDB-financed Rural Supply Chain Project requested the World Bank Group to conduct a Coffee Supply Chain Risk Assessment for the country. The objectives of the mission were to: i. identify and characterize the major risks being faced within the coffee supply chain; ii. assess the current risk management approaches being applied; iii. identify key short and longer term vulnerabilities in the coffee supply chain; iv. identify areas requiring priority attention for risk management, investment, and capacity building. Methodology: The findings and analysis of this initial assessment are based on a methodology designed by the Agricultural Risk Management Team (ARMT) of the World Bank for assessing risks in agricultural supply chains. This methodology is referred to as “Rapid Agricultural Supply Chain Risk Assessment” (RapAgRisk)9 and is designed to examine and quantify major risks along specific agricultural supply chains. RapAgRisk provides a conceptual framework and set of detailed guidelines for conducting a system-wide assessment of risk, risk management and vulnerability within agricultural (commodity) supply chains. The assessment is devised as a consultative and time-bound process geared toward providing a ‘first approximation’ of key vulnerabilities and areas requiring priority attention in investment and capacity building. The assessment team followed the sequence outlined in RapAgRisk, as shown in Figure 5. Figure 5: Overall Sequence of Analysis and Consultative Steps Pre Field Assessment PreparationPreliminary Field Excercises & ConsultationsField Visits & Stakeholders Interviews • Baselinedatapreparation • Supplychain & spatial mapping • Consultations scheduling • Initial meetings Communication of Results • Completion of reports • Dissemination of reports • Operational follow ups • Arrivalof team / team planning • Completion ofbaselinedatagaps • Identification of tentativerisks • Initial stakeholdersplenary meeting Assessment Wrap Up & Recommendations • Diagnostics follow up • Recommendations • Identification ofgaps • Fieldtrips,government consultations • Stakeholders interviews • Riskidentification characterization (interviews also cover risk management and vulnerability) Final Stakeholders Meeting & Wrap Ups • Identification of capacities,gaps • Priorization of risks,vulnerabilities • Riskrecommendations, follow ups The assessment team held meetings with the various actors in the coffee supply chains and conducted field visits to Thiotte, Baptiste, Marmelade, Jacmel, and Beaumont from November 2-14, 2009 (Figure 4). The mission consulted with a broad range of stakeholders across the Haitian coffee supply chain including the Ministry 9 Source : http://siteresources.worldbank.org/INTCOMRISMAN/Resources/RapidAgriculturalSupplyChainRiskAssessmentConceptual Framework.pdf 6 Haiti Coffee Supply Chain Risk Assessment of Agriculture (MARNDR), banks and microfinance institutions, coffee federations and cooperatives, exporters, roasters, processors, small (informal) and large (formal) traders, NGOs, and farmers. A full list of interviewed stakeholders is provided in Annex 1. 3. Coffee supply chains in Haiti Multiple supply chains connect coffee producers in Haiti to their final consumers (Figure 6). According to INCAH, approximately 30 percent of total Haitian coffee production is washed (or semi-washed) and the remaining 70 percent is dry processed. The domestic market (64 percent of total production) is the largest one by volume, followed by the informal trade with the Dominican Republic. Although there are multiple supply chains operating in the coffee sub-sector in Haiti (also shown in Figure 6), the following are the five biggest categories by volume:10 a. Artisanal coffee supply chain for domestic consumption (58 percent) b. Coffee supply chain for informal trade with the Dominican Republic (28 percent) c. Commercial/industrial coffee supply chain for domestic consumption (6 percent) d. ‘Café pile’ (unwashed, often considered inferior coffee) supply chain for export (6 percent) e. Specialty coffee supply chain (gourmet coffee, fair trade coffee, etc.) (2 percent) 3.1 Artisanal coffee supply chain for domestic consumption Coffee is a traditional beverage in Haiti and the country’s domestic consumption is substantial. Haiti’s per capita annual consumption of coffee is 2.1 kg, which is highest among the low-income coffee producing countries.11 Approximately 58 percent of the coffee produced in Haiti is delivered to domestic consumers through the artisanal roasters’ supply chain, an informal, fragmented and decentralized chain that consists of thousands of traders, roasters, and retailers of coffee. The capital requirements are low and this supply chain has relatively low entry and exit barriers. Farmers sell the unwashed coffee to ‘madam sara’ (trading microenterprises) in rural markets and the coffee eventually flows to the urban and suburban markets through few intermediaries. Thousands of informal microenterprises roast coffee in their households for eventual sale in the markets. In rural areas, household roasting dominates but, gradually, roasted coffee from the microenterprises is making inroads. The bulk of domestic consumption consists of unwashed coffee, called ‘café pile’, in which cherries are simply dried into a thick black crust around the bean and then removed with the aid of a mortar and pestle. The dried coffee bean is subsequently roasted in an artisanal kitchen and mixed with sugar to produce roasted coffee ready for consumption. Household coffee roasting for family consumption is a common practice in rural Haiti. The majority of the farmers interviewed during the mission noted that they kept a portion of their coffee harvest (varying between 2 and 10 pots of dried cherry) for their household consumption. 3.2 Coffee supply chain for informal trade with the Dominican Republic The Dominican Republic is a large buyer of Haitian coffee and most of it is traded informally across the border. INDUBAN, the biggest roaster in the Dominican Republic, has established a coffee roasting facility in close proximity to the Haitian border. Most of the roasted coffee coming originally from Haiti is sold in the domestic 10 Source: Béhal, Joseph (2007). The assessment team received this data from INCAH 11 Source: http://earthtrends.wri.org/searchable_db/index.php?theme=6&variable_ID=294&action=select_countries Coffee supply chains in Haiti 7 and local tourist markets. In addition, the Dominican Republic roasters also sell significant volumes of roasted coffee to nearby Caribbean islands including Puerto Rico. The majority of the coffee produced in the Thiotte and Baptiste regions is currently being sold to traders in the Dominican Republic due to their geographical proximity, competitive prices, and the incentives they offer. Initially, trade with the Dominican Republic buyers was undertaken by informal traders on a much smaller scale and consisted largely of unwashed ‘café pile’. In recent years, the activity has evolved and now the bulk of the trade consists of semi-washed coffee. A large number of Haitian microenterprises collect wet coffee beans from the farmers and transport them to small de-pulping machines scattered throughout the region. De-pulping reduces the weight of the coffee so traders can carry it on mules across the border. Roasters in the Dominican Republic have set up washing stations nearby where they weigh and collect the coffee for washing and drying before sorting it for further roasting. The roasters in the Dominican Republic offer multiple incentives to microenterprises and bigger traders to keep them engaged in supplying coffee across the border. They offer credit for the purchase of coffee and de-pulping machines, payment in pesos (the Dominican Republic’s currency), and performance incentives in the form of goods like radios and shoes. These incentive structures have led, over the years, to the development of a reliable supply chain which transports approximately 28 percent of the coffee produced in Haiti to its neighboring country. Despite the rugged mountainous terrain and risk of injuries to mule and traders, every season, hundreds of traders cross the border to sell their coffee to the roasters in the Dominican Republic. This trade is quite lucrative for traders and even a few cooperative leaders are engaged in it. Some of the cooperatives also sell their lower quality coffee, which they cannot sell directly to their international specialty coffee buyers, to the roasters in the Dominican Republic. 3.3 Commercial/industrial coffee supply chain for domestic consumption Currently, the industrial/commercial coffee supply for domestic consumption is relatively concentrated and dominated by two roasters, Rebo International and Weiner. Besides these two, Maribou and Claudia are two other roasters who sell branded coffee (unwashed ‘café pile’) in the domestic markets. Large roasters get most of their green coffee from selected big traders. Most of the coffee received from the traders is in the form of un-differentiated green beans which need to be sorted and manually graded before roasting. The share of such branded coffee in the domestic market is very small. Besides these big players, there are other small roasters (8 to 10) who sell mostly un-differentiated and unbranded roasted coffee in the domestic market. They buy their coffee beans from big and small traders alike. 3.4 ‘Café pile’ supply chain for export Coffee (consisting exclusively of unwashed low quality coffee also known as ‘café pile’) was one of the principal exports of Haiti in the 1960s and 1970s and a large number of exporters were engaged in this supply chain. Exports of ‘‘café pile’’ generated US$90 million in sales in 1980; however, this amount declined to US$3.2 million in 2007.12 There was a much bigger supply chain in the 1950s and a large number of coffee exporters had vertically-integrated supply chains consisting of collection points in the coffee growing areas, systems of ‘speculators’ and voltigee (intermediaries), and some of them even used to sell small volumes of washed coffee. This supply chain suffered a series of major shocks (described in Table 2) during the past 60 years, including 12 Source: FAO Stat 8 Haiti Coffee Supply Chain Risk Assessment ports’ closure in 1958, an exodus of speculators in 1986, a US trade embargo (1991-1994), and an international coffee crisis in 2000 which led to multiple restructurings of the chain. Table 2: Major shocks in the coffee supply chain for export Year Event Impact 1958 Ports closure Re-organization of coffee supply chain from regions to Port au Prince 1986 Exodus of speculators Supply chain break-up 1991-1994 Trade embargo Rapid decline in exports Early 2000 International coffee crisis Further decline in exports 2001 Steep rise in interest rates Bankruptcy of exporters (Source: Authors) The last major shock to this supply chain was in 2001, when steep increases in banks’ interest rates led to the bankruptcy of many coffee exporters. As a direct consequence of this shock, Haitian coffee exports fell from 157,700 bags in 2000 to 38,965 bags in 2002. While there were approximately 30 exporters selling ‘café pile’ in the late 1990s, currently only four coffee exporters (Weiner, Rebo, Maison Paultre St Marc and Novella) are exporting approximately 20,000 bags of ‘café pile’. In the past, many exporters used to pay a part of the harvest in advance to their ‘committed’ farmers. The bankruptcy of exporters led to the collapse of this source of financing and had a negative impact on coffee production. The few remaining exporters currently get a big share of their green coffee from selected big traders who mostly deliver un-differentiated green coffee beans which are then sorted and manually graded before packing the high quality ones for export. 3.5 Specialty coffee supply chain In the past two decades, donor investment in upgrading coffee to provide greater returns to the coffee producers has led to the emergence of a specialty coffee supply chain. While some of this coffee is sold as gourmet coffee (mostly under the Haitian Bleu brand) part of it is also sold as fair trade coffee. The chain consists of approximately fifty (primary) cooperatives and seven federations/associations (secondary level cooperatives) which were promoted by different non-government organizations (NGOs) over the past two decades. In this two-tiered cooperative structure, primary cooperatives are the main interaction point with the farmers and they are responsible for coffee collection, washing, drying, transportation, and the implementation of development programs for coffee growers. The associations/federations are responsible for finishing (milling, grading, and packing), marketing, selling (largely exports, but limited domestic sales as well), fund raising, development planning, administration, and coordination. Approximately 25,000 farmers are enrolled in different cooperatives. However, only 1.74 percent of the total coffee production was channeled though the cooperative supply chain which exported 6,084 bags (each containing 60 kg) of coffee in 2006. In the past, farmers preferred to sell to the cooperatives because of the possibility of receiving ristourne, a second payment or dividend from the sale of the coffee paid by the cooperative at the end of the season. More recently though, owing to the financial difficulties of the cooperatives and associations, many of them are finding it difficult to fulfill their obligation to disburse dividends to the coffee farmers. Because of this and other reasons, the majority of the cooperatives is able to procure only a marginal proportion of its farmers’ coffee production as these prefer to sell most of their coffee beans through alternative channels. Coffee supply chains in Haiti 9 In Thiotte and Baptiste, traders are able to match the prices offered by the cooperatives and, furthermore, they provide up-front cash payments, unlike the delayed payments made by many cooperatives. These traders are providing stiff competition to the cooperatives in some regions. In others, where competition for coffee is limited, farmers are nevertheless compelled to sell their coffee at much lower prices to domestic traders because of the limited procurement offered by cooperatives. While the secondary cooperatives could easily sell more coffee to their international buyers (they have significant greater demand for coffee than they can currently fulfill), the cooperatives are generally unable to buy larger volumes from farmers due to limited working capital and insufficient production of high quality coffee beans. The higher profit margins of selling gourmet (specialty) coffee to importers in Europe and Japan have attracted the attention of two of the leading roasters/exporters (Rebo and Weiner) to enter this chain. Both have collaborated with farmers’ cooperatives/federations and between them, have exported two/three containers of gourmet coffee. The two companies have also made substantial investments in coffee production areas, and installed washing and drying stations in the mountains to improve the efficiency of their operations and the quality of coffee beans. 10 Haiti Coffee Supply Chain Risk Assessment Figure 6: Haiti Coffee Supply Chain Map Informal trade with the Dominican Republic (28.39%) Artisanal roasting (58.39%) Commercial/ industrial roasting for domestic consumption (5.71%) ‘Café pile’ for export (5.59%) Gourmet/fair trade exports (1.74%) Roasters in the Dominican Republic Artisanal roasters Small roasters No. = 8 to 10 Big roasters No.= 4 (Weiner, Rebo, Marabou, Claudia) Exporters No. = 4 (Weiner, Rebo, Maison Paultre, Novella) Coffee federations/ associations No. = 7 Commissioners/ Traders “Madam sara’ (trading microenterprises) De-pulpers Speculators (big traders) No. = 30 to 40 Coffee cooperatives No. = 40 to 50 ‘Madam sara’ (trading microenterprises) Marginal farmers (20%) Small farmers (65%) Large farmers (15%) Constraints in the coffee supply chain 11 4. Constraints in the coffee supply chain All of the above mentioned supply chains are in a constant state of flux and competing against each other to procure coffee from the farmers and capture a large share of their respective markets. Each of these supply chains has its unique characteristics, stakeholders, structures, and processes but, at the same time, they all suffer from some common limitations and constraints which impact them, albeit differently. Some of the shared constraints, which have eroded the competitiveness of the coffee sub-sector and contributed to its overall decline, are: i) Environmental degradation (loss of tree cover) Haiti’s tree cover is estimated at less than 1.5 percent of the total geographic area (compared to 28.4 percent for neighboring Dominican Republic) and this remaining tree cover is almost exclusively associated with areas of coffee production, where farmers maintain it as a source of shade for their coffee trees and coffee plantations. When farmers migrate from coffee production to other crops, they not only cut down their coffee trees, but also the trees that provide them with shade. Furthermore, fuel wood and charcoal requirements of the Haitian population has lead to greater loss of tree cover. Environmental degradation has rendered vast acreage of upland areas unfit for coffee production. Presence of shade trees is critical for coffee production and the loss of tree cover is threatening the survival of the coffee ecosystem in Haiti. The incentives to maintain the tree cover are fast disappearing due to competing pressures for alternate land use, fuel wood and charcoal requirements, and low remuneration from coffee sales. Farmers’ decision to cut down shade-providing trees has long term repercussions, not only for their own ‘creole gardens’, but also for ‘creole gardens’ in lower laying regions. Removal of shade cover renders that area unfit for coffee cultivation and negatively impacts the productivity of the remaining crops in the ‘creole garden’. It also poses significant challenges for neighboring farmers whose ‘creole gardens’ lie downhill, due to a decline in humidity and soil fertility levels, as well as an increase in soil erosion. Additionally, reduction in tree cover speeds up environmental degradation resulting in increased mud slides and flooding. To a large extend, managing this trend is beyond the capacity of the coffee supply chain actors alone and a large scale concerted action through public-private partnerships on maintaining and restoring tree cover is required. ii) Access to credit Haiti does not have a well functioning credit system for the rural market. Credit for the agriculture sector is highly rationed and the majority of the farming households are unable to make productive investments on their land due to lack of access to credit. The coffee sub-sector is in dire need of re-plantation but farmers have no access to credit which limits investment in coffee tree replanting and management activities. Furthermore, interest rates for credit, when available, are very high. The presence of microfinance is very limited and offers interest rates that are approximately 60 percent per annum. Such high interest rates make it unviable for farmers to borrow for longer-term investment in coffee production. iii) Poor infrastructure Coffee in Haiti is produced in the mountainous regions and the majority of the coffee production areas have limited access to roads. Farmers have to walk for hours before they can reach buying centers and it takes even longer to transport coffee cherries from the collection centers to the processing centers. While a few cooperatives have set up washing and drying stations at remote areas closer to the farmers, the majority of the producers do not have access to any washing or drying infrastructure, preventing them from producing high quality, higher value coffee. iv) Unsecured land tenure situation in certain areas In certain parts of the country, political instability in the past has led to a situation where the landowners are absent and farmers have been tilling the land for years, without formal property rights over it. Because they 12 Haiti Coffee Supply Chain Risk Assessment fear being evicted, these farmers have no incentive to invest in the land they till, especially when it involves tree crops like coffee. In other areas, while the customary land rights are in place, absence of legal land registration and clear land titles often create ambiguity and conflict, especially when inheriting the land from parents/ relatives. Finally, in some areas farmers have been doing cultivation on public lands and do not have legal or customary entitlement on the land they supposedly control. While all these situations are common to the whole agricultural sector, the fact that coffee is a tree crop further exacerbates the problem as it involves a longer investment timeframe. v) Aging coffee trees The majority of Haitian coffee trees are between 30 and 40 years old, and some even older, a fact that reduces yields and limits the production of coffee beans. Coffee trees older than 15 years have passed their prime production period and old age makes them more susceptible to pest and disease attack. Aging coffee trees are a big constraint for the coffee sub-sector competitiveness and large-scale re-plantation efforts are required to boost coffee production. vi) Aging farmers Haiti has seen large-scale migration from rural to urban areas over the past two decades, primarily of younger people. This has resulted in the bulk of the farming currently being done by the older population. Besides affecting the agriculture sector in general, this also has serious implications for the long-term sustainability of the coffee sub-sector in Haiti, as there are fewer new farmers to replace the older ones that retire or die. vii) Structure of the ‘creole garden’ While the ‘creole garden’ system is considered ecologically sustainable and it ensures food security for the farming households by providing a wide variety of food and commercial crops, it is also a major impediment to improving productivity of coffee plants. The structure of the ‘creole garden’ is not suitable for intensive and proper management of coffee plants, leading to lower harvest levels and lower remuneration from coffee. Coffee was the primary cash crop during the 1970s and 1980s; however, in recent years its importance has diminished and become marginal in the mixed cropping system. According to a study (cited in Béhal, Joseph, 2007), coffee currently represents only 10 to 30 percent of the value added of peasant labor in the ‘creole garden’. viii) Waning government interest There has been a gradual decline of government support to the coffee sub-sector. During the 1970s, the National Office of Coffee (ONCAF) provided a large range of services to the coffee sub-sector. Over the years, established organizations were abandoned and replaced by newer ones, often with fewer resources and smaller budgets. Institutions in the past used to have a budget from the public treasury which was complemented by the funds provided by international donors. INCAH was established with the goal of providing national coordination for the coffee sub-sector by bringing all coffee stakeholders, both in the private and public sector, into the forum. Since its inception, funds for INCAH have been reduced by the government and today it is currently staffed by only three people, thus being widely perceived as having insufficient resources to fulfill its mission of promoting the coffee sub-sector in Haiti. 5. Major risks in Haitian coffee supply chain and capacity to manage those risks The coffee supply chain in Haiti confronts multiple risks. These risks are detailed below in Table 3 and grouped into three main categories: production risks, market risks, and other risks. The table also establishes a preliminary Major risks in Haitian coffee supply chain and capacity to manage those risks 13 identification of the group of stakeholders that is most likely to suffer losses from the realization of the enlisted risks. Due to the scarcity of data regarding coffee production, acreage, weather phenomena, and others at the national and regional level, quantification of risks and associated losses is problematic so the majority of this exercise has been of qualitative, rather than quantitative nature. Table 3: Major risks in the coffee supply chain in Haiti Identified Risks Who suffers the most? Production Risks Scolyte (coffee berry borer) Farmers Hurricanes Farmers Non-cyclone excess rain Farmers Failure to regenerate plantations/Non replacement of aging trees Farmers Market Risks International coffee price volatility Exporters, cooperatives Sharp exchange rate appreciation Exporters Steep increase in banks’ interest rates Exporters Fall in domestic consumption Local roasters Decline of cross-border trade with the Dominican Republic Farmers, traders Exporters default on loans Exporters, banks Contract failure Exporters, cooperatives Transportation blockage due to damaged roads Exporters, cooperatives Cooperative failure Farmers, cooperatives Other Risks Political risk (changing government, coup, riots) Exporters, traders, cooperatives Labor risk Commercial farmers/estates (Source: Authors) It is also necessary to contrast the identified risks in terms of the potential to produce losses to the industry and also in terms of the frequency of such events occurring. The combination of both variables (intensity and frequency) is captured in Table 4 below. The identified risks located in the darkest brown area (upper right corner) of Table 4 represent risks that need the most urgent attention because they can potentially cause the highest losses (even at catastrophic levels) and are more likely to occur than other risks. The second level of importance is represented by the light brown boxes, whereas the clear boxes (on the left side of table) represent identified risks that, either have low potential 14 Haiti Coffee Supply Chain Risk Assessment to cause damages, or their frequency of occurrence is also low. In the following paragraphs, only the risks mentioned in the brown shaded boxes will be addressed. Table 4: Summary of risks: severity vs. probability Potential Severity of Impact Negligible Moderate Considerable Critical Catastrophic Probability of Event Highly probable International coffee price volatility Transportation blockage due to damaged roads Failure to regenerate plantations Political risk Scolyte Probable Labor risk Non-cyclone excess rain Hurricanes Cooperative failure Occasional Contract failure Exporters default of loans Remote Fall in domestic consumption Sharp exchange rate appreciation Steep increase in banks’ interest rates Decline of cross-border trade with the Dominican Republic Improbable 5.1 Production Risks Production varies in response to rainfall, temperature, floods, farmer decisions, and pest and diseases. Some of the major production risks for the coffee supply chain in Haiti include: a. Scolyte (coffee berry borer): Coffee supply chains in Haiti suffer from a high risk of Scolyte infestation (the coffee berry borer is an insect that makes holes into coffee cherries damaging the coffee bean). Scolyte infestation leads to reduced coffee bean production, lower quality coffee and lower yields. The impact of this risk is multifaceted, with a reduction in high quality coffee for export, a reduction in income for farmers and an incentive for farmers to migrate away from coffee production. This risk is already prevalent across the Haitian coffee industry with infection rates ranging geographically between 20 and 50 percent. Key respondents interviewed for this Study, assert that 15 to 20% of the coffee production is lost annually as a result of this pest. Furthermore, Scolyte infected coffee cherry is purchased at a discounted price, 15 Major risks in Haitian coffee supply chain and capacity to manage those risks especially by the cooperatives. It also damages the stored coffee beans. Due to the existing prevalence of Scolyte in Haiti, the failure to tackle it effectively, and the losses suffered by the farmers, the impact of this risk has been classified as critical. Scolyte is manageable and there are three well-known