Close to 90% of coffee in Papua New Guinea is sourced from smallholder farmers and these suppliers face many challenges, including the remoteness of the farms, deteriorating road infrastructure and the increasing cost of logistics.
The biggest challenge being the lack of liquidity in the market. Coffee is a cash intensive crop, and exporters pay cash to farmers for their crop, which they cannot recoup until the coffee reaches the end buyer. This could take weeks or months.
With coffee prices at record levels, smaller exporters often do not have enough cash on hand to buy as much coffee as needed, leaving farmers with unsold coffee simply because there is lack of cash in the system.
In many places this problem is handled through the financial system, where banks provide credit like the overdraft facility, to help businesses smooth the cash cycle, but with the banks high interest rates exporters and small businesses cannot afford the credit.
Kosem Coffee Chief Executive Officer (CEO) Mark Munnul said the partnership between MDF and Kosem Coffee will work to tackle this challenge in the Jiwaka and Western Highlands Provinces, with MDF supporting Kosem establish a credit system, called a ‘revolving fund’ which will provide Kosem with cash to buy coffee from smallholders.
The ‘revolving system’ will be replenished when Kosem Coffee receives payment and this cycle is repeated several times during the season, making it possible for Kosem to buy and export significantly more coffee during the harvest season, increasing farmer incomes.
At the partnership signing in Port Moresby, Kosem Coffee Chief Executive Officer (CEO) Mark Munnul stated that the credit model would benefit small exporters like Kosem, as well as local farmers.
“This is a big help to national exporters. The coffee price has increased, and for small exporters like me, access to banks is expensive, and its maximum returns are limited. This partnership will support local exporters and farmers now and, in the future,” Munnul said.