Root Capital: Helping small farmers expand and reach larger markets
Regions: Latin America and Africa
Challenge: Nearly 2 billion people worldwide live in rural areas, beyond the reaches of modern infrastructure, outside the formal economy and heavily dependent upon small-scale subsistence farming. As demand for coffee and other crops from developing nations has soared in recent decades, increasing numbers of these farmers have ramped up their production or attempted to connect to global supply chains. However, they often lack the technical and managerial skills to adequately handle their finances, production costs, fluctuating market prices, and crop diseases.
Solution: OPIC has committed more than $30 million in loans to Root Capital, a Massachusetts-based nonprofit social investment fund that lends capital through rural farm cooperatives in Central America, South America, and Africa, provides farmers with financial training, and invests in efforts to improve productivity, such as combat the devastating leaf rust epidemic in Latin America. Root Capital’s target demographic is the “missing middle:” borrowers whose operations are too small in scale to qualify for commercial lending but too large to be helped by microfinance.
OPIC is one of a long list of Root Capital’s funders. They include: Ashoka, Calvert Social Investment Foundation, Citi Foundation, The David and Lucile Packard Foundation, Deutsche Bank Americas Foundation, Foley Hoag LLP, Inter-American Development Bank, JPMorgan Chase Foundation, Kendeda Sustainability Fund, Peru Opportunity Fund, The Rockefeller Foundation, Skoll Foundation, and Trillium Asset Management Corporation.
Impact: As of 2014, Root Capital had disbursed more than $600 million in loans to rural farmers and was nearing the one million mark in numbers of agricultural producers reached, most of whom are women.
Of critical importance, Root has helped connect its small-scale farmers to global retailers interested in environmental and social sustainability, such as Green Mountain Coffee Roasters, Whole Foods Markets, and Starbucks.
What does this mean on a local level?
In Haiti, for example, rapid deforestation and plant diseases had sent the coffee industry into a freefall so severe that half the land used for coffee cultivation was lost between 1980 and the late 2000s.
Now, with the help of Root Capital, coffee producers are able to receive higher prices for their harvests of organic, Fair Trade, arabica coffee, adding as much as $250 of extra revenue to their annual income in a country where roughly five million people live below the poverty line of $1 per day. Families who at one time were migrating out of the region or uprooting their coffee plants, burning them and selling them for charcoal have been returning to their home regions.
Mali is one of the poorest nations in the world, landlocked and hampered by a terrain that consigns two-thirds of its territory to desert or semi-desert conditions. In Southern Mali, stands of indigenous gum trees -- Gum Arabic and Gum Karaya -- had been steadily disappearing due to clear-cutting and expansion of grazing land for cattle. One of the few primary uses of gum trees was for traditional medicine.
In the mid-2000s, entrepreneurs in a local company, Produit Du Sud, realized that pharmaceutical companies in Europe also used gum for various advanced medicines, cosmetics, and food ingredients. With support from Root Capital, Produit Do Sud secured contracts with such companies, rejuvenated the local gum tree sector, and has expanded its workforce to some 2,500 farmers in 200 villages, up from just a few dozen farmers in 2008.
With each passing year, Root Capital continues to broaden and diversify its impact. Among others, its programs are helping beekeepers in Guatemala, maize producers in Kenya, artichoke and jalapeno processors in Peru.
This project was profiled in 2014