Fair prices for smallholders
On behalf of the German Federal Government, KfW Development Bank has participated in the Fairtrade Access Fund (FAF) since 2012. This fund provides loans and advisory services to smallholders in Latin America and Africa so that they can establish themselves as fair trade producers. KfW currently holds a 36% share of the fund.
KfW helps smallholders and cooperatives in numerous African and South American countries to certify their goods for the Fairtrade Mark and other sustainability seals. This opens new markets to them. Fairtrade Access Fund borrowers include producers of coffee and cocoa beans, avocados, sugar cane, nuts, soy beans, grains, quinoa and honey.
The contribution smallholders make to food production should not be underestimated. Approximately 60% of worldwide agricultural production is done by smallholders in family-run operations. They generate around one third of the gross national product in agriculturally orientated countries. However, smallholders can only keep pace with larger agricultural operations if they adjust to the market.
This market is ready; the demand for Fairtrade or similarly certified goods in Germany continues to grow unabated. Since 2011, sales of these products have risen from close to EUR 400 million to nearly EUR 2 billion in 2019. The Fairtrade Mark is among the most esteemed sustainability seals for fair trade. It certifies economic, social and ecological minimum standards. The producers receive a guaranteed minimum price which hedges against price fluctuations on the global market. By the end of 2019, over 330,000 smallholders had already benefited from the project.
The fund is also seeing a lot of interest from investors. The original aim to achieve a volume of USD 38 million by 2020 had already been achieved two years before. So KfW expanded its participation. The target volume is now USD 100 million by 2025. The fund currently comprises a volume of USD 65 million.
Borrowers also show great interest in the fund’s benefits. Since its inception, it has paid out more than USD 250 million to 72 institutions in 21 countries, thus funding over 330,000 smallholders. The farmers generate higher and more stable income when they participate in fair trade. This improves their living conditions and simultaneously ensures employment in rural areas.
Despite the pandemic, the fund was able to continue its work in 2020 as well, primarily expanding in Africa. Although the disbursements were lower than in previous years, they increased again in the third quarter of 2020.