The loan to coffee exporter Just Know Your Coffee Cup may benefit as many as 20,000 smallholder farmers in the East-African country.
IDH Farmfit, a Netherlands-based blended finance impact fund for smallholder farmers, has made a $6.5m (€5.7m) investment in Just Know Your Coffee Cup (JKCC), a coffee exporting and processing company which sources all of its robusta and arabica beans from 7,426 smallholder farmers in Uganda. The loan was provided in cooperation with the Africa Agriculture and Trade Investment Fund and other lenders.
Uganda is the world’s seventh-biggest coffee producer, with the commodity generating close to one third of its total export earnings, according to World Coffee Research.
The Ugandan coffee trade is dominated by around 10,000 middlemen, who buy up 95% of all production from the country’s 1.8 smallholder farmers before selling it to international coffee traders, Isaac Mungoma, senior investment manager at IDH Investment Management, the fund manager of the IDH Farmfit fund, told Impact Investor.
“The foreign-owned companies are sourcing their coffee from smallholder farmers through a network of middlemen. The middlemen have no loyalty to the farmer. They just simply show up during the harvesting season and will pay the going rate for the coffee and that’s it. What JKCC does is different, it sources directly from farmers and that’s why it really appeals to us,” Mungoma said.
Founded in 2017, JKCC sources 100% of all its coffee directly from smallholder farmers, at a premium to market prices. It also adds value by processing its coffee beans before exporting, and providing its coffee growers with technical assistance and credit programmes.
Threefold jump in production
Smallholder farmers who join JKCC typically see their production jump threefold in three years, according to Mungoma. That’s partly due to JKCC giving its farmers practical assistance on anything ranging from what seedlings to use to which organic fertilisers are best.
“We also came across farmers who had trees that were over 100 years old, and we’re just simply telling them these trees are just not productive anymore, so you might as well get better seedlings,” Mungoma said.
With the investment by Farmfit JKCC aims to expand its sustainable practices, boost the quality of its products and grow into a sustainable producer benefitting its local communities, according to Julius Kalulu, its CEO and founder.
The $6.5m loan may reach as many as 20,000 farmers and lift their income by at least 50% in seven years, acording to IDH Farmfit.
“When we look at a transaction, we always look at both sides; is it financially sound, and is there a relationship between our investment and smallholder farmers seeing an improvement in their income, in their livelihood? With an investment like JKCC, we see a clear link between investment and improvement of income and farmer support,” Roel Messie, CEO of IDH Invest and fund manager of the IDH Farmfit fund, told Impact Investor.
USAID
Since its first close in 2019, the IDH Farmfit fund has invested more than €50m in boosting the livelihoods of smallholder farmers, according to Messie.
The blended finance impact fund, which is supported by the Dutch Ministry of Foreign Affairs, and partnered with food and consumer goods companies including Mondelēz, Jacobs Douwe Egberts, and Unilever, aims to unlock investment in smallholder agriculture that’s perceived as too risky by commercial investors. Farmfit does this by using a number of de-risking tools for investments into smallholder value chains.
For example, IDH Farmfit takes first loss responsibility and has also been supported by a second loss guarantee from the US Agency for International Development (USAID) of up to $250m, according to its website.
The US agency is currently being wound down as part of the “America First” agenda of US president Trump, which includes slashing the majority of its programmes.
“So far, the guarantee has not been used,” said Messie, when asked about the impact of the USAID cuts on the second loss guarantee. “It still could be used, but in practice, it proved a little bit complex. Most investors decided they don’t need it. So it hasn’t really been a problem for us.”
