Vanilla is one of the most popular spices in the world, but vanilla farmers usually don’t benefit much from the high prices end customers are willing to pay. This concern led Incofin, for the first time, investing in vanilla, through the Fairtrade Access Fund.

Chances are high that the vanilla flavor of your ice cream comes from the Sava region in northeastern Madagascar. Responsible for 80% of the global production of Bourbon vanilla, Sava is by far the main supplier. 70,000 smallholder farmers produce on around 25,000 hectares of  land. This is also the region where Lafaza sources its vanilla beans. Incofin’s Fairtrade Access Fund (FAF) recently approved a loan of USD 1.5 million to vanilla processor and exporter Lafaza Trading SARL (Incorporated in Madagascar). Lafaza buys premium vanilla from smallholder farming communities at fair trade prices and then sells it for retail, wholesale and through export channels. But the company offers the more than 1,000 vanilla farmers they are working with more than an interesting price.

The vanilla farmers live in small, isolated villages, often requiring several days of travelling by canoe, hiking or overcoming difficult roads to reach them. That is how Lafaza makes the difference; the company does not just buy the vanilla, but also provides capacity building on proper cultivation and curing techniques to enhance the quality of the vanilla and which enables the farmers to acquire organic certification.

The production process of vanilla is very labor-intensive and delicate. It takes up to four years for a new vanilla orchid vine to begin producing flowers. They are in bloom for less than 24 hours and pollination must occur at that moment when the flower bud opens.

Incofin’s investment in Lafaza reduces further the concentration risk in the FAF portfolio, both in terms of product (first investment in vanilla) as of country diversification (first deal in Madagascar).

Children at the local library that was sponsored by Lafaza

 

 

More and more people are using hot peppers. Thanks to a quick turnaround of Incofin’s agri-finance liquidity fund, the Peruvian hot peppers trader Exportables, was able to offset rising operating costs and to meet an increasing demand.

Rising popularity for hot peppers despite, or even thanks to Covid-19

Covid-19 disrupted global food systems and some industries had to hold on by the skin of their teeth to weather the pandemicAt the same time, however, a gradually rising popularity of the Latin American and Asian cuisine in the western world swelled the demand for hot pepper saucesMore time at home during the lockdowns has inclined people to experiment in the kitchen stirring up the appetite for exotic meals. The global hot sauce market attained a value of USD 4.3 billion in 2020. The market is further expected to grow to reach USD 5.8 billion by 2026.

 Exportables is a 100% women-owned company, which is remarkable since the export of Peruvian hot pepper mash (tabasco, habanero, cayenne and jalapeño) is dominated by men. Another element that makes the company stand out from the crowd is that they work with contract farming. Exportables sets up a year-to-year schedule with its supplying farmers to secure the crop production, which means the farmer gets the guarantee that Exportables purchases 100% of the production at a fixed price.

While this innovative approach benefits hundreds of farmers to secure a steady income stream for at least 18 months, it deters traditional banks from financing Exportables. Without financing, the pepper trading company  managed to sustain its growth thanks to a sound financial management and commercial strategy that anchors its supplier base.  

Nevertheless, Covid-19 brought shipping delays, which led to a spike in operating and logistics costs. Increased costs threatened, in turn, to contract Exportable’s liquidity. Thanks to a loan facility of ALF, Incofin’s agri-finance liquidity fund, Exportables gets some breathing space to offset the costs and is able to meet the increased demand. ALF is the first and only international lender of the Peruvian hot pepper exporter.  

Crop diversification brings extra income and strengthens the farmers’ resilience

Exportables sources the hot peppers from smallholder producers located in the regions of San Martin and Amazonas. In this area, most farmers produce rice, coffee or cocoa; crops that make them vulnerable to climate change effects and volatile local prices. Diversifying their crop with hot pepper makes them more resilient to those external risks. A hot pepper cycle lasts for 18 months where from month 4 until month 18 the plant is producing fruits daily. Coffee for example, needs up to 3 years after a first harvest before it reaches its productive stage. 

Exportables motivates the first-time farmers not to substitute their main crop, but to choose hot peppers as a complementary source of income. The farmers get their first set of seeds from Exportables for free. 

Exportables accompanies and supports the farmers

From the signature of the contract until the culmination of the agreement, Exportables works closely with the farmers to ensure high crop yields, all while ensuring they are produced in the most environmental and social friendly way.

To preserve the soil, Exportables deploys with its farmers:

  • Drip irrigation reduces the use of water and fertilisers. It helps to control the weeds and avoids loss of nutrients. It also avoids erosion and soil degradation.
  • Crop rotation keeps the soil more fertile and protects it better.
  • Exportables only works with producers in areas that were already cultivated, thus avoiding producers to destroy rainforest or to open new areas for agriculture purposes.

Path to a more efficient supply chain

The fruits are delivered to milling stations, where they grind and ferment them with salt. The milling process must be made the same day of harvest to preserve the fruits’ qualities in colour and flavour. That is why Exportables set up ten milling stations throughout its suppliers’ regions.

To make this process more efficient, Exportables introduced the idea of in-farm processing: it is the farmers themselves who make a mash out of the peppers. They receive an extra USD 0.2 per kilo and on top of that, get rid of daily transportation costs. Today 80% of Exportables’ farmers take charge of the milling process.

The mash gets collected weekly and transported to San Martin. There, shipments are sent to the Paita central plant, where they sample, test, filter and store the mash. Now the product is ready for export.

AgriFI, an EU-funded facility launched in 2018 to accelerate sustainable investments in developing countries while focusing on smallholder inclusiveness, has signed its first investment. AgriFI will subscribe up to EUR 5 million in long term equity in the Fairtrade Access Fund (FAF), an open ended debt social and environmental impact fund advised by Incofin Investment Management.

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