Do NOT Sell Your Coffee

Because, if you happen to be a coffee farmer in Oku, you’ll be getting screwed. That is of course only my humble opinion, but I’ll elaborate. Today, coffee in Oku is selling at a price of 3,000 FCFA per tin (approximately 8-10 kgs) or about 300 to 370 FCFA/kg. For perspective, this past February we were buying conventional coffee at 750 FCFA/kg and since that time the freight on board (FOB) price in Douala has not changed at all.

It’s pretty clear why this is happening. Local coffee buyers got burned last year when they went out in December and opened the season buying from 800-1,000 FCFA/kg. In contrast, the Oku Area Cooperative Union opened its season in January at 700 FCFA/kg and never went above 725 FCFA/kg. We’ve been over this before. Unfortunately, it seems like the coffee buyers are acting with the same shortsightedness that got them burned last year, but they’ve flipped toward a more conservative approach.

A small number of coffee producers are accepting these horrendous prices because some unexpected expense has snuck up on them in the last few months. This is a shame. Let’s assume that the price next year will be similar to this past season (my prediction anyway, if anyone’s taking bets), if a farmer sells his coffee in May for 350 FCFA/kg and in January of 2014 it is valued at 750 FCFA/kg they’re looking at about a 10% interest rate each month or what amounts to around 200% APY. Unfortunately, we haven’t been able to intervene with our (comparatively ridiculous) 0% interest advances so far this season, but we’re doing our best to get ourselves organized for this year. For the long-term health of the Oku economy and the coffee sector, these issues need to be addressed, so it is an intervention we are proud of and happy to provide as it can help the people we work with to get off of the spiraling credit carousel.

Now here’s a prediction that could add a twist to the situation. Believe it or not, lots of the guys who go out and give these loans to farmers at this time of year end up losing money at the end of the season. How could that be with such insane interest rates? Well the default rate is pretty high too (though it’s not really so formal as ‘defaulting’; basically a farmer just does everything they can to avoid you or tells you week after week that they’re going to get you your money from a son living in Douala or something like that). So thus begets a vicious cycle of the lender increasing interest rates to protect themselves which encourages more defaults spurring still higher interest rates, etc. Surprisingly, the social stigma against defaulting isn’t that great which increases the risk borne by the lenders.

So, what’s my advice to farmers who are hard up for money right now? Do the math. There are plenty of people in Oku who are willing to give short-term credit in a variety of ways. For example, if you need a sheet of tin for your roof, don’t sell a tin of coffee (at 200% APY) but instead try to work out an agreement with the guy selling the zinc with a set date and terms of repayment that will be a little more advantageous (hell, you could offer twice the price next year and still come out ahead). Easier said than done, sure, but do-able. And I’m here ready to help anyone who needs a hand doing said math.