Asian Development Bank and Japan International Cooperation Agency lend $163 million to agribiz giant Olam to upgrade smallholder farming.
Coffee production is an important sector in the economic life of Indonesia, Papua New Guinea (PNG), Timor-Leste, and Vietnam. In all four countries the industry is characterized by unorganized, small-scale farming. But that may change as a result of an international project intended to help tens of thousands of farmers adapt their production to industry needs.
While coffee is Timor-Leste’s largest non-oil export, and is grown by 38% of all Timorese households, more than half of the planted area consists of unproductive old trees, resulting in low yields. Coffee production in Timor-Leste is de-facto organic, but only around 25% of exports have certification.
In PNG, too, coffee production is a backbone of the rural economy, and employs 30% of the total labor force.
Most of the coffee produced in Indonesia and Vietnam is grown by smallholders. This takes place on farms which average approximately one hectare in size, where livelihoods depend on a successful coffee crop.
Smallholder coffee farmers across these countries face common challenges that include lack of access to finance and quality inputs; low yields; lack of storage and market infrastructure; lack of opportunity to add value at the local level; and dependence on middlemen, according to the Asian Development Bank, a regional development bank with 68 members that was established in 1966 to eradicate extreme poverty.
In PNG, the quality and productivity of coffee has been declining and smallholder farmers’ yields are 50–60% below their potential. In Vietnam, the consequences of heavy use of fertilizer and other agro-chemicals include deforestation, degradation of land, depletion of fisheries, and water pollution. In Indonesia yields are low largely due to two factors: the low penetration rate of the government’s agricultural extension services, and the low adoption rate of better technologies among smallholder coffee farmers.
Climate change is a serious threat to countries in Southeast Asia and the Pacific, especially in the agriculture sector. Timor-Leste and PNG are the two countries most vulnerable to climate change in the Pacific, with economic losses expected to reach 15% of PNG’s annual gross domestic product and 10% of Timor-Leste’s by 2100. Both countries are expected to experience a temperature increase of more than 2.5°C on average by 2070.
Vietnam is listed by the World Bank as one of the five countries that will be worst-affected by climate change given its high exposure to floods and storms. The fact is that its two core economic sectors — industry and agriculture — are mostly located in coastal lowlands and deltas. Experts now predict that Indonesia, the third-largest emitter of greenhouse gases in the developing world after China and India, will see temperatures increase up to 3.9°C and precipitation decrease up to 12% by 2100. This was verified by long-term studies conducted by the Intergovernmental Panel on Climate Change.
One important coffee-focused project — The Agricultural Value Chain Development Project — aims to help all four countries, and it is funded by ADB. It provides support to the Singapore-based Olam Group to assist the smallholder coffee farmers that are its suppliers.
ADB joined forces with the Japan International Cooperation Agency (JICA) to provide $163 million in loan agreements to Olam International Limited (OIL) and Café Outspan Vietnam Limited (COVL), a subsidiary of OIL. The loans to these companies, part of Olam Group, aim to help improve agricultural value chains involving up to 20,000 smallholder farmers in these four countries.
ADB’s assistance includes a $83 million loan to OIL and a $5 million loan to COVL. The project’s first phase of assistance was directly co-financed by ADB and JICA, and it lent a total of $75 million to COVL.
The ADB loans to Olam, an affiliate of Mitsubishi Corporation, are partly focused on training and agricultural extension services, both of which aim to improve productivity, reduce environmental impacts, and improve livelihoods. Certification may be a suitable tool to achieve this, in some cases. The project emphasizes holistic climate-smart agriculture training programs which include training sessions, field trials, and demonstration farms. Each of these aim to enable farmers to better cope with the negative consequences of climate change.
The project builds on a mobile technology platform being developed by Olam. The Olam Farmer Information System (OFIS) helps Olam, the farmers, and other stakeholders, to understand the big picture. It analyzes smallholder farm data and provides personalized farm management plans. OFIS is being used in this project in order to ensure that the project directly benefits farmers by personalized assessment, training, planning and better access to market information.
The project encourages the implementation of coffee grading and quality-based pricing among farmer groups. It helps to connect farmers directly to potential customers of certified conventional and specialty coffees, which should help growers earn higher prices and margins. The use of OFIS improves information on farm production and assists with traceability. This allows Olam to offer larger, more secure coffee volumes to customers — which in turn results in coffee sales becoming a more secure and lucrative livelihood option for farmers.
The project is designed in ways that actively encourage institution building and the establishment of industry standards in select countries. This is done through the development of coffee grading-systems and unified information management systems. The aim is to better include farmers in the global coffee supply chain by helping them to adopt sustainable farming practices that increase their production, quality, and incomes.
The project is designed around the registration of 20,000 new farmers (including 6,000 in Indonesia) into the Olam Farmer Information System (OFIS). This requires building on-the-ground relationships with farmers and collecting data through a baseline and annual surveys.
The information collected is used to design training programs, including sessions focused on three priorities: good agricultural practices, integrated pest management, and climate smart agriculture. The establishment and operation of a series of coffee demo plots provides accurate information on local coffee-growing conditions. This data helps shape the training content, and the plots provide training sites for farmers.
Farm-level demonstration plots — modeled using World Coffee Research methodology — are implemented locally.
The demo plots are:
- Located on individual farmers’ land, and broadly representative of the size and the growing conditions faced by other farmers in the immediate vicinity.
- Managed according to a design that is centrally coordinated, and which involves side-by-side application of different treatments and practices for comparison.
- Supported by careful data collection and monitoring, to enable clear evaluation of the economic returns of different improvements in farming practices, or of changes in farming practices.
- Providing clear visual evidence to nearby farmers, and micro-data for more aggregated analysis.
OFIS is used to generate individual farm management plans, and the project will supply inputs and advice to implement these effectively. Improvements in productivity, coffee quality, and farmer livelihoods are key measures of success. Organic certifications, and/or Organic Land Care certifications, are useful tools for delivering and measuring these. Each of the project countries — Timor-Leste, PNG, Vietnam, Indonesia — has a separate contract.
Three of the project’s specific areas of focus are worth mentioning here:
Focus #1: Establish inclusive coffee supply chain
- Support quality improvements and market linkages (certification if appropriate), leading to livelihood improvements of new farmers: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Train farmers on gender inclusion and elimination of child labor: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Train famers in financial literacy: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Pilot smallholder specialty coffee traceability program in 10 cooperatives in Timor-Leste and 10 cooperatives in Indonesia.
- Facilitate farmer-to-farmer best practice exchanges by training farmer-instructors: 400 in Timor-Leste; 400 in Indonesia; 200 in Vietnam; and 200 in PNG.
- Conduct assessment of impact of project on the income and livelihood of the target households by leveraging OFIS and other primary/secondary data.
Focus #2: Establish environmentally sustainable and climate-resilient supply chain
- Train farmers in climate smart agriculture, including adaptation strategy for temperature increase and precipitation change; water harvesting and drip irrigation; conservation agriculture: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Train farms in good agricultural practices, including replanting and rejuvenation; pruning; integrated pest management; intercropping; harvest and post-harvest solutions: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Establish network of trial demonstration plots for rehabilitation, renovation, and replanting, including soil management at central, district, and village levels, to design, implement and propagate the appropriate methodologies: 50 in Timor-Leste; 40 in Indonesia; 30 in Vietnam; and 20 in PNG.
- Design and deliver organic coffee-farming pilot program for farmers: 1,000 in Timor-Leste; 500 in Indonesia; 400 in Vietnam; and 200 in PNG.
- Train 2,000 farmers in Vietnam in innovative technologies for resources conservation; use of agro-chemicals and organic inputs; pollution control.
Focus #3: Expand smallholder farmer access to information and services:
- Roll out OFIS to farmers across Vietnam, Indonesia, Timor-Leste and PNG and provide personalized farm management plans: 6,500 in Timor-Leste; 6,000 in Indonesia; 4,500 in Vietnam; and 3,000 in PNG.
- Provide an “OFIS Window” as a data platform, to ensure transparency on project activities and progress.
- Conduct feasibility study, and pilot the use of OFIS as a tool for the wider coffee sector renovation program in Timor-Leste and PNG.
- Pilot financial inclusion program by using OFIS to connect farmers to formal financial institutions: 400 in Timor-Leste; 500 in Indonesia.