Enrique Zamora, General Manager of LAFISE Agropecuaria, and Calvin Miller
Introduction
The LAFISE Group in Central America plays a role at every stage of the value chain through an integrated system of financial services and agricultural value chain addition, including processing, commodity management, and national and export marketing. LAFISE, headquartered in Nicaragua has a Bancentro banking network comprised of banks and financial services in 10 countries in Latin America and the United States, and four associated group companies – Agropecuaria LAFISE (agriculture), Almacenadora LAFISE (storage and com- modity management), Seguros LAFISE (insurance) and LAFISE Trade. It also works directly with governmental organizations and NGOs in order to provide the services needed to meet the needs of the participants in the value chain, with a special emphasis given to small-scale farmers.
Overview
Nicaragua is an agricultural country with the second lowest per capita income level in Latin America. With a history of conflict, wide political shifts and interference, and an unstable currency, investment and lending through con- ventional sources has been low. This is much more aggravated in agriculture where rural infrastructure is weak, systemic climatic risks such as hurricanes are high and political interference in prices and interest rates have been com- mon. In addition, agricultural producers operate on a small scale without strong organizations.
Nicaragua has the potential to be highly competitive in the marketplace with a number of agricultural chains, including fruit, coffee, basic grains and milk and livestock. With the opening of free trade agreements in the region, both the opportunity for growth and the increased threat of international competition heightened the need to create effective value chains in the ag- ricultural sector of Nicaragua. However, in order to do so, it required orga- nization, training and investment at multiple levels. Critical areas requiring attention were:
• dispersed production with small volumes;
• poor product handling and post-harvest practices;
• need for transport, storage, processing and packaging;
• lack of and informality of markets, without price and market information;
• price distortions;
• need for financing at all levels.
Figure 4.12 Traditional cost structure in Nicaragua Source: case authors, Zamora and Miller
30%
100%
70%
43%
33%
0 33%
2.20 US$/kg
1.55
0.96 0.72
0.00
Agricultural chain cost distribution
27%
10%
33%
Retailer 30%
Intermediation Wholesaler 27%
Rural trader 10%
Agriculturist 33% • Inputs
• Labour
• Finance
• Profit/loss
0 =
As shown in Figure 4.12, the traditional intermediation expenses and costs of financing in Nicaragua were too high as the process was inefficient and returns to the farmers were low. Under such conditions, LAFISE realized that directly financing smallholder farmers in the existing system of production and marketing was not viable – the chains must be organized, shortened and modernized.
LAFISE was well placed to provide comprehensive support to the agri- cultural value chain. With financial resources from its Bancentro banking network, established in Nicaragua in 1991, it had both the financing re- sources and an international presence with considerable experience in capital markets, international finance and other commercial banking instruments.
With the creation of an agribusiness company, Agropecuaria LAFISE, it could begin to both improve and increase its lending to the sector, but also prof- itably begin to diversify its activities, its direct knowledge of specific value chains and open the door to provision of additional financial services.
Working directly with small-scale producers requires more than financ- ing and market linkages. Agropecuaria LAFISE was quick to understand the importance of collaboration with both governmental and NGOs to support their work in providing the technical and organizational training and capac- ity building needed to be able to meet the requirements of the firm. Formal and/or informal collaborative agreements are developed with the social and/
or technical organizations and universities in a region or sector for provision of services complementary to those of the agricultural company.
For mutual benefit, the goal of LAFISE is to convert traditional agricultural producers into rural entrepreneurs who have the capacity and commitment
Figure 4.13 LAFISE Group partner model of intervention Source: case authors, Zamora and Miller
of market oriented, commercial agriculture. In doing so, currently with over 5,000 small-scale producers, it benefits both the farmers and its companies with higher returns, increased investment and more security in each other’s operations. By working together in all phases of production, marketing and financing, it strives to shorten the chain between growers and consumers and achieve its motto of a ‘win–win’ relationship. LAFISE Group support begins as soon as farmers receive their production loans and continues until they have collected the proceeds on their overseas product sales. It includes access to the office in Miami, which is responsible for visiting trade fairs and identifying buyers. As soon as a good potential buyer has been identified, paperwork is simple. The presence of Agropecuaria LAFISE helps to assure the buyer as to product quality and speeds up operations and safeguards collection for the seller.
As shown in Figure 4.13, the principal company for agricultural value chains is the Agropecuaria LAFISE. It plays the central role as initiator, orga- nizer and coordinator of the producers throughout the process, including that of technical assistance, value addition and payment. This company works in
Agropecuaria LAFISE identification of producer organizations
Agropecuaria LAFISE partnership design and support
NGO/Government organizational support
Agropecuaria LAFISE recovery
BANCENTRO fund management Agropecuaria
LAFISE partnership coordination/
ongoing pIanning Almacenadora
LAFISE market development
Almacenadora LAFISE storage, warehouse
receipts Agropecuaria
LAFISE storage, processing
Seguros LAFISE transport,
fire
Technical oversight and quality certification
NGO/
Government technical
support
LAFISE Partnership Model of Intervention
multiple chains, including dairy, beans, plantains, honey and coffee. These include value chains in agriculture, livestock and agro-industry. In some agri- cultural chains, such as dairy, it offers the whole range of services from provi- sion of inputs, collection, processing, packaging, wholesaling and retailing. In pineapples its value added includes exporting and selling through its partner company LAFISE Trade. In such chains, it is active in all aspects except for pro- duction. Through its partners it is also active with microenterprises, housing, commerce and other non-agricultural activities which also can benefit those with whom it works in the agricultural chains.
As shown in Figure 4.14, there are many specific service provision aspects of the work. The LAFISE Group is involved in undertaking the processes at all stages of the post-harvest and value addition, but the farmers, with their organizations, and often with technical assistance support from partnering development organizations, are responsible for the production and harvest.
Figure 4.14 LAFISE Group integrated service model Source: case authors Zamorra and Miller
Crop production
Harvest FARMER ORGANIZATION
• Credit screening
• Technical assistance and TA brokerage with NGOs
• Quality certification
• Credit provision
• Fiduciary fund management
• Insurance (transport, fire, life, etc.)
• Crop collection in partnership with farmer organizations
• Value adding through processing
• Storage
• Warehouse certification
• Warehouse receipt management
• Warehouse receipt finance
• Warehouse insurance
• Identification of markets and buyers
• Product placement (national and export
Value chain stage Service provider Service provided
LAFISE Agribusiness
LAFISE Insurance Co.
BANCENTRO
Collection
Processing
Storage
Marketing
LAFISE Agribusiness
LAFISE Warehouse Manager Co.
BANCENTRO and LAFISE Insurance
LAFISE Trade
LAFISEGROUP
• Payment collection
• Producer payments and loan collection
LAFISE Group Network (10 countries)
LAFISE Group operates many different kinds of support arrangements for agricultural value chains, from an array of financial products (credit and oth- erwise) to technical assistance and marketing services. Some of these are listed below:
1. Commodity Management and Warehousing. LAFISE owns a warehouse operation in Nicaragua where farmers can store their crops. They can either store their full crop or receive a down payment for a maximum of 70 per cent of the value, which is paid within two days of delivery.
As an authorized and supervised warehouse management company, LAFISE is responsible for quality and control of the produce in storage and in transit.
2. Agricultural Commodities Exchange. LAFISE has a seat on the agricultural commodity exchanges in various countries of Central America. Because these exchanges are certified by the ministries of the countries, many producers, especially cooperatives, can use them to handle domestic marketing of their products. Producers have price information to be able to sell their products for the best price, and buyers know that they are acquiring products that uphold quality standards and that have both a certificate of origin and a quality certificate.
3. Central American payment system. Exporters have access to the network of offices in all the countries of the region and the assurance of stable currency conversion. As a result, they enjoy great flexibility and effi- ciency for receiving payment on products they sell in the region.
4. Investment fund. LAFISE handles an investment fund of US$70 million with resources from the Inter-American Development Bank, a Norwe- gian investor and other European sources of financing to support small- scale businesses throughout Central America.
5. Managed Funds. The bank manages funds for 21 national and interna- tional organizations. Because of Nicaragua’s banking regulations, it is very expensive to lend money to farmers with little collateral. There- fore, the LAFISE Group began a fund-management service for other organizations and programmes that target small-scale farmers.
6. Commodity exchange marketing support. Through strategic alliances with USAID, Michigan State University, Inter-American Institute for Cooperation on Agriculture, Nicaragua’s Instituto de Tecnología Agro- pecuaria and the Commodities Exchange, LAFISE works with producers of various products to sell their crop through the agricultural commodi- ties exchange.
7. Loans through food processing companies. Bancentro in Nicaragua has be- gun to place loans through food processing companies or consolidators, having encountered considerable difficulty trying to reach small-scale farmers directly. For example, using this value chain approach, the milk collection plant serves as an intermediary for its dairy producers grant- ing loans for purchase of inputs and animals.
8. Technical Assistance. LAFISE Agropecuaria provides technical assistance directly and indirectly through facilitation of such services through NGO and governmental agencies. It directly provides technical assis- tance and training on specific areas such as export management and financial capacity building.
9. Alternative financing. Through Bancentro it provides an array of addi- tional value chain financing services such as leasing for the purchase of equipment and machinery, asset pledging (chattel bonds or warrants), guarantee trusts, discount factoring and export finance.
10. Insurance. Through Seguros, LAFISE Group not only offers insurance for both the commodities that pass through the value chain, but also the range of insurance products needed by the clients and their businesses.
11. Export. In selected value chains, the produce is processed by Agropec- uaria LAFISE and exported either within the region or to the United States.
Lessons learned
LAFISE has proven that it can be successful in working in an integrated struc- ture throughout value chains. It has been able to grow in a relatively fast fash- ion from banking to multiple services. It has incorporated other value chains in step-wise fashion as it is able to ensure that it has the capacity, resources and, most importantly, a competitive market in which to operate.
A second important lesson in the LAFISE model is its acknowledgement of the value of partners. By working inclusively through partnering alliances with organizations providing technical assistance and/or other services, it has been able to incorporate many small-scale producers that otherwise would have been difficult to reach directly. In the same manner, LAFISE partners with other agribusinesses and actively works with organized producers in the Association of Exporters.
Challenges and opportunities
The most difficult challenge facing the LAFISE Group has been neither the competitive marketplace nor the lack of capacity of farmers or other difficulties within chain activities; rather it has and continues to struggle with the political uncertainty of the country, with its pressures to regulate prices, markets and/or interest rates. While value chain finance, with its linked and embedded services, is less susceptible to political manoeuvres, operating in such an environment is nevertheless much more challenging.
LAFISE is a model for consideration in other countries and regions. Few leaders have had the vision and the substantial resources to put into place the integrated model of LAFISE Group, yet through linkages and partnerships similar integrated models are possible. The model is also similar in many
respects to that shown in India with the agricultural service centres, many of which are similarly initiated by a bank.
Case references
Angulo, J.E. (2007) ‘Reflexiones acerca del financiamiento de cadenas agrícolas de valor’, Documento de Trabajo 26, RUTA, San José, Costa Rica.
Zamora, E., (2006) presentation at the Latin American Conference.
Zamora, E. (2008) presentation at the Asia International Conference.
Website: www.lafise.com [accessed 4 October 2009].