Nicaragua: Brewing up a Private Sector Solution to the Coffee Rust Challenge

About the Project

For over 150 years, La Roya – an insidious orange fungus that affects coffee plants – has been the curse of coffee farmers across the globe. But in recent years, owing largely to climate change, the disease has regained a foothold in Central America, affecting up to 40 percent of coffee plantations in Honduras and Nicaragua, and up to 70 percent in Costa Rica, El Salvador, and Guatemala.

Although research has shown that coffee rust can be combated through replanting programs coupled to good agronomics, this solution has proven a challenge for small farmers in Central America – many of whom have limited access to long-term financing and resources.

In Nicaragua, the rapid spread and devastation of the outbreak in 2013 highlighted both the longstanding vulnerability of smallholder coffee farmers as well as the increasing challenges posed by historic underinvestment, aging trees, poor farming techniques and changing climate. Low productivity is having a wide impact on Nicaraguan farmers and requiring the renovation of their plantations in a sustainable and systematic way. Coffee is one of the largest sources of rural employment and accounts for over 15 percent of exports, GAFSP and IFC have developed an innovative model for providing affordable, long-term financing and technical assistance to coffee farmers so they can renovate their farms.

Through a $30 million loan, IFC and GAFSP – in conjunction with the Inter-American Development Bank (IDB), Ecom, Exportadora Atlantic and Starbucks – will provide financing to farmers for the renovation of over 5,000 hectares of coffee plantations in Nicaragua affected by La Roya. The project will help to mitigate climate change by deploying a scalable model of climate smart renovation that could be replicated by other countries and coffee traders.

This unique project, which is IFC’s first agri climate adaptation project in Latin America, will be combined with advisory services on agronomic and climate best management practices.

IFC will invest $12 million in the total $30 million loan program. The IDB will invest $12 million; Atlantic will invest $3 million; and coffee roaster and retailer Starbucks will also invest $3 million. GAFSP will provide a 25 percent first loss guarantee for IFC and IDB’s investment, which will lower risks and the level of interest rates charged to farmers. Both IFC and GAFSP hope to expand this project to other countries affected by La Roya.