Meet 2024 Non-Profit Sustainability Award Winner: Root Capital
For us at the SCA, sustainability involves shaping mindsets (and having our mindset shaped in return) and evolving our practices and behaviors.
SCA Publications Manager, LAUREL CARMICHAEL, and Sustainability Director, ANDRÉS MONTENEGRO, were delighted to speak with WILLY FOOTE, founder and CEO of Root Capital, the winner of the non-profit category of the 2024 SCA Sustainability Awards. Root Capital is a social impact investor that provides financing and business training to agricultural enterprises in Africa, Asia, and Latin America.
Join the 2024 Sustainability Award Winners for a Panel Discussion at World of Coffee Copenhagen! Happening Thursday, June 27, 2024 from 4:00 - 5:00 PM, Lecture Room 1.
We see Root Capital as a role model for how organizations can incorporate sustainability into their ethos and daily practice. Willy spoke to us about how coffee producers and local community leaders not only shape his mindset but define Root Capital’s entire approach. Coffee producers and farmer-allied businesses, Willy argues, are the solutions-providers at the center of the coffee industry. Root Capital provides access to finance and training that provide the structure and resources for coffee producers and their communities to implement their own nature-based climate solutions, pursue greater gender equity, and harness the talent of young professionals.
We also spoke with Willy about how Root Capital collaborates intentionally and doggedly with other actors in the supply chain to ensure that value is distributed more equitably. Through their connections with coffee buyers, for example, they use coffee contracts as the repayment mechanism for loans, which enables access to finance for agricultural businesses that lack the hard assets that banks usually demand. Alongside more equitable distribution of value, Root Capital acknowledges there must also be a more even distribution of risk. Providing finance in local currency means that Root Capital (a less vulnerable actor in the supply chain) takes on the risks associated with currency fluctuation that would normally have to be borne by more vulnerable actors like coffee producers or cooperatives.
While Root Capital offers tailored finance based on local needs, they also use their global perspective to help identify patterns of effective action. They’ve identified a “missing middle” in coffee finance: the gap between large-scale lenders and microfinance. They want to fill this gap, “crowding-in” likeminded collaborators.
Root Capital is the non-profit Sustainability Awards winner (from a very impressive group of finalists)[1] because it is a beacon of change in the industry. Root Capital’s approach shows that coffee finance can be innovative, collaborative, sustainable, and driven by the needs of producers. At the same time, their model is also pragmatic and actionable. We believe that actors in all sectors of the coffee industry can take practical teachings from Root Capital’s work and implement them in their own practices. Root Capital prioritizes collaboration with actors throughout the coffee supply chain to identify effective action and innovate together.
We recommend reading the second interview of this series, with the for-profit Sustainability Award winners, Sancoffee. While the two organizations’ day to day work might look very different, we see so many parallels in their sustainability goals and practices. This is a great sign that there is collective desire and capacity to move the industry down more sustainable paths.
A member of a Root Capital coffee-growing cooperative client in the Takengon region of Sumatra, Indonesia tends to seedlings in a plant nursery. Credit: Root Capital.
Laurel Carmichael (LC): Willy, can you please summarize Root Capital’s work as briefly as possible, for people who will be reading about you for the first time?
Willy Foote (WF): Our mission, our purpose, is to grow prosperity and resilience of rural farming communities who live on and help steward precious landscapes and ecosystems in Africa, Latin America, Southeast Asia and in particular, coffee lands. We do that by partnering with, and investing in, agricultural businesses like farmer-owned coffee co-operatives that are deeply rooted in local community and are committed to sustainable land management and have potential to become an engine of impact in their communities. Root Capital provides capital, capacity-building and better access to markets for hundreds of those businesses a year.
LC: Fantastic. That was succinct! At the SCA, we see sustainability as a pathway, rather than an end goal. I want to ask how you define sustainability at Root Capital. How do you incorporate sustainability into your practice and how do you tangibly measure that you're achieving your goals?
Root Capital’s Women in Agriculture Initiative (WAI) expands access to finance and promotes gender equity and inclusion for women in agriculture. Credit: Adam Finch/Root Capital.
WF: I couldn't agree more in that sustainability is a journey and not a destination. At Root Capital sustainability is really the throughline of our organization’s strategy and all our work.
The impact pathways of our sustainability model are:
access to tailored, affordable finance,
climate action,
investments in gender equity,
and expanding opportunities for the next generation.
Together these pathways, we believe, meet clients’ greatest needs and highest priorities as defined by their communities, so that they can build long term comprehensive resilience and prosperity in the face of so many converging and intersecting challenges that affect every corner of society.
To give you a concrete example, through our Women in Agriculture initiative—which Root Capital launched nearly a dozen years ago—we proactively invest in and strengthen the capacity of women-led and gender inclusive businesses. I'm proud to share that in 2023, women-led businesses represented one third of our entire lending portfolio. Of the more than roughly 210 agribusinesses that Root Capital reached last year through lending, over 70 of them were led by women.
LC: I like the term “tailored finance.” If we talk about “tailoring” what does that collaboration process look like for you?
WF: I would say that deeply listening to our clients, to our partner businesses and partner communities is at the very forefront of everything we do at Root Capital. As an organization focused on social innovation, impact is our purpose for being. We understand that those clients, those partners are the people best suited to shape our strategic direction. At Root Capital we are intentional about disseminating the ideas and innovations developed in partnership with agri-enterprises to help ensure that the entire sector is investing in the right solutions. We don’t have all the answers, but we hope to be a lighthouse in terms of what those solutions might be. We’ve identified something that we call “the missing middle” in financial access. This is the gap between microfinance and commercial banks, which is estimated at $65 billion annually in sub-Saharan Africa.[2] We're never going to solve that problem on our own.
We want to use our proximity to, and long-term relationships with, local communities to surface solutions that can be adapted and replicated by institutions and practitioners of solutions. The aim is that we “crowd-in” other capital providers and other capacity builders into the marketplace, by demonstrating to them what’s possible. Coffee producers and farmer-allied businesses don’t just influence our mindset as an organization; they’re the solutions-providers at the center.
Beline, a coffee producer, strolls the lands of her cooperative in Gakenke, Rwanda. Credit Adam Finch/Root Capital.
LC: One of the reasons why coffee agricultural businesses are not conventional small businesses is because, as they grow and evolve, they also face a multiplicity of different challenges (such as climate-change driven extreme weather). How does your model incorporate long-term communication, consultation and feedback with your partners?
WF: We are currently in the middle of our five-year Climate Resilience Roadmap.[3] In our context of providing data, expertise, and capital for climate finance it’s imperative that we have a voice of customer-driven, ground-up understanding—a forensic understanding—of what exactly we mean when we say climate finance. Right now, total global climate finance —financial products specifically designated to climate solutions (across all industries, not just coffee)—is $1.3 trillion dollars annually.[4] Of this far less than 1 percent is distributed to smallholder farmers, who represent some 2 billion people.[5]
We reached out to nearly 100 farmer businesses representing hundreds of thousands of farmers to ask: what are your highest priorities around climate finance? How are you investing at the farm level, in climate—smart innovations like solar, soil regeneration, and tree planting? What about at the enterprise level? How do you finance a centralized nursery? How do you finance a centralized composting plant, etcetera at the enterprise level? How do you transition from dirty fuel consumption to solar? How do we invest in water and energy efficient technology and equipment and machinery at the at the enterprise level? If we see the percentage of climate finance distributed to smallholder farmers increase from less than 1 percent to 5 percent—which would be an increase of billions of US Dollars—we don't want it to go to where it's not actually needed. Finance needs to be informed by the community inventory process. We use this as a constant feedback loop as we move forward.
LC: Your five-year strategy mentions that you work in places that many lenders consider “too risky.” Coffee growing is often extremely risky, with risks including climate-change-driven extreme weather events, logistics crises, or fluctuations in economic markets. Given that value (monetary and non-monetary) in the coffee sector represents the aggregated efforts of all the systems’ actors, we believe that all actors who reap value must also take risks. Why is it important for you to work with coffee growers not only despite, but because of risk?
WF: When we are evaluating a new region, or a new client, the first question that we're asking ourselves is not, “how risky is this?" We're asking ourselves, "what is the potential for impact?” What’s important to us is the impact we can make as a first investor, or a first lender, so that as agricultural businesses succeed and scale, they can become a real engine of impact for their local communities. In our credit plus capacity model the relationship with our client will often start with donor-funded advisory services. Through this system we provide the capacity-building expertise at no cost to the client, which helps them strengthen operations and work towards their first loan. Bankability allows coffee farmers to build their own financial resilience and allows them to face complex challenges.
Over the past few years, I would say we have a shifted from that de-risking perspective to a model of holistic services, which is an even broader than credit plus capacity in addressing challenges. A holistic perspective includes options like a one-time resilience grant for innovative client-led projects. For example, we have been providing resilience grants—that then become self-financing as an ongoing expense for their business—for establishing daycare facilities for women workers. These are brick and mortar daycare facilities right alongside centralized processing facilities so that women have a safe place to leave their kids while they're working. They don’t risk losing work and facilities don’t risk losing great employees because they don't have a daycare facility.
We work with hundreds of buyers and traders and importers in the coffee industry each year, and in the absence of hard assets or registered land titles that banks typically require—not to mention the ability to run a cash flow statement, etcetera—we will use contracts for farmers as the repayment mechanism. It’s not perfect. If a product doesn't get to port, much less if it's rejected at its port of arrival, you’ve got a problem, but it’s fundamentally what's allowed us to find a way in partnership with the coffee industry and beyond to provide $2 billion in lending over the years to 850 businesses.
There’s a final, brand-new initiative that jumps to mind. Root Capital launched an innovative lending initiative in Colombia just this year where we're dispersing loans in local currency (Colombian pesos). A case example is with the farmer association, Asociación de Productores Ecológicos de Planadas (ASOPEP). ASOPEP’s revenue streams are in local currency. We offered a loan of 630 million Colombian pesos—approximately US$150,000—in local currency.[6] In doing so we're protecting that business from the exchange rate fluctuations and fees involved with currency conversion. Local currency lending can also get money into the hands of farmers faster, when you don’t have that long cash conversion cycle. By design, we are shifting ASOPEP’s risk onto ourselves, and raising the right type of blended capital to do that. As less vulnerable actors work together to share risk, there are industry-wide benefits that could endure from that collaboration.
Andrés Montenegro (AM): I wondered, how are you shaping your approaches in regions where organizational structures are less consolidated or less functional? When there is no co-op, or no organization, what’s your approach? How have you learned to create impact without existing structures to do so?
WF: The first thing I would say is that there's no one-size-fits-all solution. We want to practice humility by knowing that we can't be everything to all communities and all farmers. Fundamentally, our model is based on investing in agricultural business that aggregates smallholder farmers so that they can leapfrog middle-people and tap into greater value. This is how we build the engine of impact and try to distribute value more evenly. Having said that, one of the biggest question marks is how do we create alternative aggregation points? Farmer co-operatives sometimes are difficult to scale. They're hard models. People must be as much a political leader and a social leader, as a business person to create that kind of enterprise.
Members of a Root Capital client share a laugh during a training with a Root Capital employee. Credit: Root Capital.
We try to remain as agnostic— clear eyed, but agnostic—about which enterprise profiles we work with. For instance, just two weeks ago we were in Guatemala with our Board of Directors visiting farmer co-operatives like Manos Campesinas and member associations, but also visiting private mills and fincas run by interesting visionary next gen talent. Staying “agnostic” means that we can work with private-sector players who have increased access to data, markets, and connections. We can leverage these resources to help and aggregate small farmers.
For us it’s important to use data and engage in disruptive thinking about how we thrive in a market that is so volatile. It has a lot to do with making agriculture and coffee an attractive career destination: something that looks different to the previous generation’s farms. The future models are going to be super cutting-edge enterprises that harness entrepreneurship and create more alternative aggregation points.
LC: On that note, what do you feel optimistic about in the coffee industry more broadly, or coffee finance, more specifically?
WF: One is that, as an organization, we firmly believe that smallholder farmers are a frontline voice for climate action. When I see our clients use nature-based solutions, in particular agroforestry intensification and broader agricultural regeneration practices, I feel like that's an important path forward.
I’m also optimistic about the success we’ve seen through our Next Generation Jobs Impact Pathway. We offer what we call talent partnerships, where we provide year-long paid internships and apprenticeships funded by Root Capital and our supporters. These connect agricultural business clients, in particular coffee farmer businesses, with skilled young people and provide them with employment opportunities. Most of the participants are recent graduates from technical colleges, not necessarily graduates of big fancy universities in Nairobi or in Lima, but rather local regional technical colleges located at origin near coffee farmers.
LC: Finally, would you like to share what winning this SCA Sustainability award means to you at Root Capital? What does it symbolize about what you’ve achieved and what does it enable?
WF: I would say, on behalf of Root Capital, we are really humbled and grateful to have won the award. It’s an honor to be recognized by the SCA as part of this extraordinary community and we are in such great company. I want to highlight the co-finalists in the nonprofit category, including our colleagues at Technoserve, International Women's Coffee Alliance, and World Coffee Research, who we've worked with for years.
Most importantly, winning this award provides us with a platform to amplify the voices of coffee growing communities at origin and who are the true solutions providers and who represent a frontline force for really advancing sustainability within the entire coffee value chain. In our experience, frankly, they're left out of the conversation too often and are too easily ignored by far-away decision makers.
Most importantly, winning this award provides us with a platform to amplify the voices of coffee growing communities at origin and who are the true solutions providers and who represent a frontline force for really advancing sustainability within the entire coffee value chain. In our experience, frankly, they're left out of the conversation too often and are too easily ignored by far-away decision makers.
About The Sustainability Awards
The selection process for the 2024 Sustainability Awards was led by a committee of staff and volunteers, including previous SCA Sustainability Award winners. Learn more about the Sustainability Awards, including this year’s Project Category and Business Model Category award winners, as well as previous winners here.
The 2024 Sustainability Awards are generously supported by TricorBraun Flex.
References
[1] Specialty Coffee Association. “Announcing the Finalists for the 2024 SCA Sustainability Awards.” Accessed June 12, 2024. https://sca.coffee/sca-news/2024-sca-sustainability-awards-finalists.
[2] ACELI Africa. “Bridging the Financing Gap: Unlocking the Impact Potential of Agricultural SMEs in Africa.” Accessed June 12, 2024. https://www.globallandscapesforum.org/publication/finance-gap-agricultural-smes-africa.
[3] Root Capital. “Climate Resilience Roadmap 2023 Annual Report.” Accessed June 12, 2024. https://rootcapital.org/resources/climate-resilience-roadmap-2023-annual-report/.
[4] Climate Policy Initiative. “Annual finance for climate action surpasses USD 1 trillion, but far from levels needed to avoid devastating future losses.” Accessed June 12, 2024. https://www.climatepolicyinitiative.org/press-release/annual-finance-for-climate-action-surpasses-usd-1-trillion-but-far-from-levels-needed-to-avoid-devastating-future-losses/.
[5] World Economic Forum. “Why small-scale farmers can teach us a lot about climate change.” Accessed June 12, 2024. https://www.weforum.org/agenda/2024/02/small-scale-farmers-climate-change.
[6] Daniel Rivera. “Lending in Local Currency for Strategic Impact.” Accessed 12 June, 2024. https://rootcapital.org/local-lending/.