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  • 10.11.3-RISK AND THE RELATION TO TRADE CREDIT-RISK MANAGEMENT IN THE SMALLHOLDER SECTOR

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  • Risk management in the smallholder sector

     
     
    Access to risk management solutions for small growers would not only facilitate access to credit but would also reduce their exposure to price volatility. This in turn would also help them to plan ahead…

    But, of all coffee producing countries only Brazil has been able to establish a successful internal futures market for coffee, the Brazilian Mercantile and Futures Exchange. Growers in all other producing countries must look abroad, directly or indirectly, if they wish to make use of futures markets. See Section 08, Futures markets.

    In many countries small growers and smallholders are mostly locked out of risk management markets anyway, for reasons that include a lack of knowledge, high costs, and inappropriate contract sizes.

    As for gaining access to credit, potential solutions include the aggregation of production and financial capacity through the establishment of cooperatives or other forms of producer groupings. Such groups can then decide how they approach price risk management: simply as an insurance that they purchase, or as part of the marketing process. Unfortunately it cannot be ignored here that in a number of countries the performance record of cooperatives has not always been impressive.

    But even so, the most likely credit channels for smallholders remain well run co-operatives or other forms of grower organizations that have the required critical mass, and that are in a position to guarantee and discipline their members. But without some limitation of the price risk, without some form of management of the price risk, access to affordable credit will still remain a distant objective.