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Protecting Against the Unthinkable: Price insurance comes to the rescue of coffee cooperative in Mexico

Posted by Jorge Cuevas on August 25, 2014 at 11:32 AM

It´s a warm mid-summer day, and I’m catching up with the typical email backlog when one message’s subject line catches my eye: "Se Robarón el Camión" (The truck has been stolen). I immediately feel my stomach tighten as I nervously click to open the full email.

As I feared, it’s a message from Isabel “Chabe” Cerqueda from our Mexico office, communicating to the coffee team in Portland that one of our selected coffee lots in Mexico was stolen on its way to port. 

20070201-_CME6077The security of coffee throughout its multiple handling stages is a major concern in coffee-producing countries, and Mexico is no exception. Still, the notion of the truck being stolen is unthinkable to me—I can’t grasp that all the energy, care, and determination that went into producing that coffee could be all for naught. 

This particular coffee lot belonged to the 21st of September Coffee Cooperative, and a couple days later, the co-op’s leader Diracsema José echoes my feelings: “I’m full of rage and I feel very sad,” he says. “It’s been an uphill battle to get ahead in this marketplace, and now the fruit of our labor is taken away like it’s nothing."

To place this event into perspective, the 21st of September Coffee Cooperative is located in the La Mixteca region, a highly marginalized, mostly indigenous-populated area of the state of Oaxaca in Southern Mexico. Oaxaca itself is a highly marginalized region within Mexico, and Mexico ... well, you get the idea.

20070818-PDSC_0166Specialty, fair-trade, and organic coffees are among the few paths that these marginalized communities in the Sierra Mixteca can follow to achieve economic success. The 21st of September Coffee Cooperative is a perfect example of how remote villages in the highlands of rural Mexico can integrate and thrive within the competitive marketplace of the global economy. In fact, these fine coffee beans are among the top sellers at Whole Foods markets as well as the bistros of Montreal and the trendiest cafés in California. But the coffee is now gone, and roasters will quickly replace it with other quality offerings to ensure their shelves are stocked.

Fortunately, the management of the 21st of September Coffee Cooperative had the foresight to insure the cargo. Unfortunately, insurance companies will only reimburse a fraction of the value based on standard commodity prices. I begin to realize that as the coffee’s value dissipates, the cooperative members’ collective sweat from manually pulling weeds to maintain organic certification will be unrewarded.

But then a realization hits me that inspires hope. I ask Chabe: “What’s the contract number?” As I get the alphanumeric code back, I frenetically punch it into my computer, and the knot in my stomach eases a little. This contract is insured!

20070819-DSC_0143In addition to the cargo insurance, the cooperative took advantage of a longstanding program at Sustainable Harvest® that uses financial instruments to provide growers with “price insurance,” mostly designed to combat extreme volatility and ensure farmers get steady and competitive prices. 

In this case, though the unthinkable happened, our price risk management program will perform beyond our wildest dreams. It will actually cover the remaining balance of the coffee value that the insurance company would not pay, making certain the farmers of La Mixteca will be fully reimbursed for the stolen coffee lot. Most importantly, it will ensure that the value from the hard work of the men and women of 21st of September is fully realized. The farmers will be able to recover from this setback and continue their march forward. 

To all who have supported Sustainable Harvest® farmer and training programs over the years, I simply relay Diracsema’s closing phrase: “Gracias por su apoyo.” 

Topics: Market Conditions, News, Programs