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393. What we miss when we take care of the business

2014-02-26 Comments Off on 393. What we miss when we take care of the business

Root Capital’s issue brief on social and environmental due diligence is lousy with insight.  But one phrase in particular jumped off the page for me: the one in which it notes that lenders “typically interact only with the business.”

I think the same can be fairly said of most of the supply chain actors downstream from smallholder coffee enterprises–exporters, importers, roasters.  In my experience, the engagement of these actors tends to be limited both vertically–focused at the top, on cooperative leadership–and horizontally–focused narrowly on core business issues.  It is natural for them to interact principally with the coop manager, board of directors, mill operators and a few farmers they may meet during field visits.  It is practical for them to drill down on issues related to quality, contracts, pricing, operations and the overall financial well-being of the cooperative.  But Root Capital’s experience shows how actors who move, thoughtfully and systematically, to engage beyond upper management and beyond key business issues are rewarded with valuable new insights–insights that can help them identify threats and opportunities that may remain hidden if they “interact only with the business.”

Root Capital has cashed in on its unusual insights on social and environmental issues to avoid bad loans it would have made otherwise and make good loans it would not have made otherwise.

The other example that comes to mind is Green Mountain’s pioneering work on seasonal hunger in the coffeelands.  It pushed beyond management, commissioning household-level surveys; and it pushed beyond bottom-line concerns to explore livelihood issues that seemed to have little relation to business.  The issue that surfaced from this research–hunger–was hardly new, but the understanding of its relevance to smallholder supply chains was new, and it helped put the issue at the center of the industry’s sustainability agenda.

If we are to see all the risks out there and identify all the opportunities for innovation, we need to systematically pursue deeper and broader engagement at origin.  We need to talk to different kinds of people about different kinds of issues to triangulate our view of origin and enrich our understanding.  We need more explorers and mapmakers to push to the frontiers of the coffee trade and report back on what they find.

As usual, Root Capital is leading the way.