Advances I: The Plan

   This week we are getting ready to give out some advances to farmers in Oku and Mbessa. Advances are not peculiar to low-income farmers or countries like Cameroon (although the motivation behind them may be). During my work in greenhouse production in PA advances would happen up and down the production chain with the largest ones being given to us, the greenhouse, so that we could afford to purchase all the inputs needed (pots, soil, fertilizer, plants, etc.) since it would be a few months before we would see any money coming. This is standard operating procedure.

One of the local credit unions that also deals with school fees.

   In contrast, the time that advances are distributed in Oku has less to do with purchasing inputs and is more directly tied to the beginning of the school year and the need for school fees. School fees are one of the biggest financial outputs families around here have during the course of the year, the other notable ones being Christmas and, less predictably, death celebrations. All over the country you will see banks and microfinance institutions advertising loans for school fees and you’ll even hear people use school fees as an argument while haggling in the market for rice or potatoes (and it works, but not for me, I’ve tried).

   Our plan for advances comes from a ‘formula’ with three factors: past production, demand, and trust. Cassman and Philip have a pretty good idea of how many bags of coffee any farmer in Oku is going to produce and our advance is going to cover only a portion of that (maybe a third at most). Then there are some farmers who are more anxious to get an advance at this time of year. This is accounted for less explicitly than the production estimate. A farmer who really needs a loan is the guy who is going to ask for it while a guy with no school age children is less pressed this time of year and less inclined to approach you. Finally, trust is a critical factor in deciding who we will give an advance to. These advances are distributed very informally, no legally binding contracts, just a sheet we ask people to sign when they receive their cash. Sometimes when you go to collect from a farmer you made a loan to he has already sold it to some other jerk and you’re left high and dry. It’s a bad reputation to get and a hard one to shake, so at this point we’re confident (but not certain) that the names we have on our list belong to trustworthy people.

   This year we are going to add a fourth factor to our ‘formula’; we will be favoring farmers who are entering into our organic program. Mocha Joes is still going to be purchasing lots of inorganic coffee (something I need to remind myself to say more often as I get preoccupied with the organic program) but we want to use advances as a way to provide encouragement to farmers that are taking this chance with us.

   One thing that needs clarification: are these advances loans or purchases on spec? The difference would be the price that the coffee is ultimately sold for. Right now the price of coffee is low as it normally is at the start of the season. This is tied to the promise of a good harvest, low demand (most buyers aren’t active yet), the need for school fees, and only loosely to the world market price. As the season progresses, the price per kilogram will almost certainly go up, so a person purchasing coffee right now can get it cheap. So are we buying coffee now with these advances? No, we’re not. When we give a farmer 50,000 FCFA we aren’t buying coffee at the current price, we’re just giving an essentially 0% interest loan. When it comes time for us to collect our product we’ll have a 50,000 FCFA credit with that farmer, no more no less. From what I can gather, this is almost always to the benefit of the farmers and is the way it is done by all the parties that purchase coffee here in Oku. I hear that buyers are more ruthless elsewhere in the country but I can’t speak to those places.

   I’m hoping to get more insight into the process over the next week as we begin the distributions and will put them down in a follow-up to this post.