How does the pre-harvest financing program work? Why does this matter? | Equal Exchange

How does the pre-harvest financing program work? Why does this matter?

Equal Exchange shares risk with our farmer partners by paying up to 60% of the Fair Trade floor price as credit as soon as contracts are signed prior to harvest. This credit is available up to 10 months in advance and is provided directly to the farmer co-op, with Equal Exchange guaranteeing at least 25% of all advances.

We have crafted this unique program over many years of work with our co-op suppliers and the Shared Interest Society, Ltd., a "solidarity" bank based in the United Kingdom. Because of Shared Interest's unheard of dedication to providing trade financing to small-scale producers we have been able to together build up a program that supplied over a million dollars in advance credit to coffee cooperatives each year since 2003.

As American farmers know, access to credit is a constant and critical problem for farmers and their cooperatives. A common practice in poor coffee growing regions is for coyotes (the local term in Latin America for exploitative middlemen) to extend cash-starved farmers loans in return for right to the next crop at a very low price. The family is thus trapped in a cycle of poverty and debt. An extension of this problem is that local lenders are usually unwilling, or uninterested in financing small farmer cooperatives. The co-ops then have no cash to pay farmers upon delivery of their beans, having to instead ask the farmer members to wait until the co-op can process, transport and sell the coffee. Most farmers cannot afford to wait and are compelled to sell to cash-flush coyotes.

Pre-harvest financing from Equal Exchange and Shared Interest helps to break these cycles and to allow both farmers and their co-ops to establish an alternative, less exploitative local coffee economy. (See for more information.)