Credit crunch? So what's new?

15 Jan 2009
As much as financially over-extended westerners might be worrying about the thought of tougher economic times ahead, with borrowing becoming more difficult (and many of us aren't even too concerned about this prospect yet), my days chatting with coffee farmers here in Guatemala are providing me with a timely reminder of what a more permanent lack of access to credit looks like.

At Trade Aid, we've long realised just how critical (lack of) access to finance is to very small-scale producers. With loans either unavailable or else exorbitantly expensive to most of the people who produce the things we buy, our willingness to offer advance payments is acutely appreciated by the groups we trade with.

Here in Central America, coffee farmers appear to be experiencing their worst growing season in decades. The 'tiempo loco' (crazy weather) has blown coffee off many trees, while in more sheltered areas lack of regular sunshine has allowed the spread of a coffee leaf spot disease known locally as 'ojo de gallo' ('rooster eye') that has reduced the harvest by around one third, and in other places the sheer variability of sun and rain has wrought havoc with the flowering and fruiting of coffee trees and thus hampered the crop considerably.

Farmers at Guaya'b, whom we buy from, are feeling the pinch. Frustratingly for them, they also know that the lower incomes they are are going get this year for their coffee will inhibit their ability to recover in the future. They won't have the capital required to make improvements in time for next year's harvest and nor can they expect to tackle the much more expensive job of replacing their aging or diseased trees. Many of the coffee trees in this part of the world are now 30 or 40 years old, and are well past their best producing years. But the short term cost of replacing these trees is considerable. Farmers could chop them down and replace them entirely (which would better in the long term, but is quite costly in the short term due to the amount of fertiliser a young seedling requires, on top of the loss of production for the three years that a replacement tree would need before it would bear fruit.) Or, they can cut back existing trees and wait for them to produce coffee from new growth (they'd still lose three years of production, but would have fewer short-term costs. On the other hand, the tree would already be old and less rigorous than a new plant in the longer term).

So, what to do? We've spent a lot of time discussing this. For now, farmers are resigned to an ongoing loss of production in an average year. Maybe at Trade Aid we can help provide more funding for tree replacement, a job we started this year with the co-op but on a small scale, and which we know would require an awful lot more money to do properly. The farmers we spoke with were quite happy to receive a soft loan for this task, for repayment over 5-10 years, but for most they know that this is a pipe dream. In practice most will shoulder on in the knowledge that their trees are dying, and that they have few viable options for other income at their stage in life.