April 8, 2008 / 9:07 PM / 12 years ago

Centam Coffee-El Salvador coffee cooperative offers loans

SAN JOSE LA MAJADA, April 8 (Reuters) - A gourmet coffee growers cooperative in El Salvador plans to open a lending arm to give members access to cash for farm improvements and help protect them against coffee market downturns.

Many coffee farmers in El Salvador have had trouble getting loans since coffee prices crashed at the beginning of the decade and banks became wary of funding the volatile crops.

Prices have come back, with February prices for mild arabicas around $1.60 per pound in New York, according to the International Coffee Organization, but small farmers still have trouble finding lenders.

“There is some credit available but the requirements keep getting tougher,” Ricardo Espitia, who heads El Salvador’s coffee council, told Reuters.

That is why the San Jose de la Majada coffee cooperative is branching out, using money saved from coffee sales and investments over its four-decade history to open a financing arm for members.

“We learned something from the coffee crisis, that it’s not safe to have all your eggs in one basket, you have to diversify,” said Roberto Delgado, who manages the cooperative nestled in the country’s eastern mountain range.

Delgado said the first small loans will be given to farmers who want to improve their crops by buying fertilizers and new farm tools.

The 600 member cooperative exports 85 percent of the over 76,000 60-kg bags of coffee its members produce each year and over a quarter of that goes to high-end coffee chain Starbucks (SBUX.O).

“The idea is to invest in the farms to renew them. To increase productivity you have to inject fresh cash,” Delgado told Reuters.

He said the loans could be used to buy coffee roasters so small farmers can process and pack their own beans and sell them locally.


The cooperative, which is applying for a license from the government to move into the financing business, says it will evaluate the credit history of borrowers and eventually could take deposits from members like a bank does.

Espitia said the cooperative got some of its financing to start the lending service from HSBC’s (HSBA.L)(0005.HK) El Salvador operation.

The long-term goal, Delgado said, is to allow members to take out loans to fund university tuitions for their children, build a house or open a small business.

“The members have a wide-range of needs that go beyond just coffee,” he said.

Starting with only a small amount of seed money — some $500,000 — the cooperative thinks it will profit on interest rates.

Nicolas Diaz, a 64-year-old administrator at the cooperative, wants a loan to buy machinery that could convert the waste from his coffee farm into biodiesel as a way to save on energy costs. (Additional reporting by Mica Rosenberg and Brian Harris; Editing by David Gregorio)

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