Productive Alliances Promote Rural Agricultural Competitiveness in Honduras

Beneficiary Story/Quote

Jimmy Ramírez is the Commercial Manager at Cafés Especiales de El Paraíso (CAFEPSA), a coffee cooperative in Honduras. Project investments helped support improvements to CAFEPSA’s drying and storage facility, and enabled a shift in production to focus on specialty coffee. The cooperative was able to shift from selling unprocessed coffee beans to local traders to selling dried and peeled beans directly to exporters:

“One of our limitations was access to financing, and without a doubt, the Project has helped us with this. Before [the project] we were only able to work with exporters, and we could only obtain credit depending on our income, but now, we do not depend on the exporter, we can go to the bank ourselves. This allows us to buy the coffee from the producers and this has been one of the great achievements of the Business Plan. There is definitely a ‘before the Project’ and ‘after the Project’. Thank you for believing in small producers.”

Challenge

In 2008, 70 percent of Hondurans were poor, and 53 percent were extremely poor, with poverty figures unchanged since 1997. Lack of adequate employment and livelihood opportunities in rural areas drove high emigration rates. Although the Central America Free Trade Agreement (CAFTA) provided opportunities for exports and growth, it also exposed small rural producers (72 percent of all farm units) to a more competitive environment. Additional challenges faced by the economy included shocks affecting the coffee value chain, due to lower international coffee prices and leaf rust disease, as well as prolonged droughts affecting food security. In 2019-2020, the country was also hit hard by the COVID-19 pandemic and by Hurricanes Eta and Iota.

Approach

The development objective of the COMRURAL Project was to contribute to increased productivity and competitiveness among organized rural small-scale agricultural producers through their participation in productive alliances. The project drew on International Development Association (IDA) experience with projects that successfully promoted private sector participation and leveraged the World Bank’s convening power to facilitate the entry of private financial institutions (PFIs) and commercial partners into productive alliances. This paved the way for the promotion of sustainable productive technologies, combined with improved access to markets as an effective strategy for smallholder producers. The use of credit guarantees and matching grants strengthened productive and managerial skills for beneficiaries and improved their bankability. The promotion of technologies such as climate-smart agriculture and good environmental practices reduced risks and promoted value addition. These included: (a) adoption of improved practices by all sampled RPOs, including organic fertilizers (for example, coffee pulp), drought- and disease-resistant seed varieties, drip irrigation techniques and micro greenhouses.

Results

Alignment with CPF: The PDO was well-aligned with all three focus areas (fostering inclusion, bolstering conditions for growth, and reducing vulnerabilities to enhance resilience) of the most recent World Bank/Honduras Country Partnership Framework (CPF for FY16-20, Report No. 98367-HN). Specifically, the Project sought to: (a) strengthen financial inclusion, human capital strengthening, and market access, including for women and Indigenous Peoples; (b) improve the enabling conditions for agribusiness; and (c) reduce the agricultural sector’s vulnerability to climate and other weather-related threats to enhanced resilience.

Between 2010 and 2021, the project achieved the following key results:

• Supported 120 Business Plans formed by productive alliances with 163 Rural Producer Organizations (RPOs) in nine value chains, benefiting 12,878 RPO members (27 percent of whom are women and 33 percent of whom are from Indigenous communities).
• Seventy percent of the RPOs in the coffee value chain received internationally recognized certifications, enabling them to sell to specialty buyers and increase sales by nearly 24 percent. The increase in sales value was achieved through an increase in the volume of coffee produced, coupled with price premiums due to product and market diversification.
• Successfully raised $1.35 in private financing for each dollar in IDA financing provided through the project. RPOs have retained the relationship with their commercial partners and private financial institutions beyond project closure, and their sales and market/product differentiation have continued to grow (some of the PFIs include Banco de Occidente, Banco del País, Banco Atlántida).
• Investments enabled RPOs to implement improved manufacturing and production practices, that led to land productivity improvements and sales value increases of nearly 24 percent. Productivity increases were supported by adoption of good environmental practices by 90 percent of RPOs (e.g., organic fertilizers, drought- and disease-resistant seed varieties, drip irrigation techniques and micro greenhouses, solar-powered dryers, cold storage).
• Increased employment and formalization opportunities in the targeted rural areas, with the creation of an estimated 24,673 permanent and temporary jobs, and a 46 percent increase in the number of co-operative members, promoting inclusion of smaller-scale farmers.

Bank Group Contribution

The World Bank, through IDA, provided credits totaling $24.73 million to help finance this project. An additional $33.5 million in private capital was leveraged, of which $20.25 million were raised through PFIs and $13.25 million from the own financing of rural producers’ organizations. Every dollar of project financing leveraged another $1.35 in private financing.

Partners

COMRURAL was initially implemented by the Ministry of Ministry of Agriculture (technical aspects of the Project) and Ministry of Finance (procurement and financial management aspects). Project implementation was eventually transferred to INVEST-H, created in 2005 to support strategic projects for the country’s socio-economic development. The Project also collaborated with the National Service for Health and Agrifood Safety (SENASA) and the Health Regulation Agency (ARSA) that were instrumental for the licensing and certifications needed by RPOs to operate their business. The collaboration with key public sector institutions supported the modernization and strengthening of the regulatory framework for agribusiness and the capacity of public sector institutions to promote a competitive agribusiness sector.

Looking Ahead

The Project’s success has led to the creation of a series of COMRURAL projects. COMRURAL II is currently being implemented, while COMRURAL III was recently approved by the World Bank’s Board. This project series has become a centerpiece of the Government of Honduras’s long-term agenda to develop and modernize the rural and agri-food economy, and each successive project will target different value chains, covering underserved populations and areas of the country, while continuing to mainstream climate-smart practices, create green jobs, and support farmers to increase their adaptive capacity and resilience to climate change impacts. The COMRURAL model has informed project design in other countries in the region, including Argentina, Belize, Brazil, Colombia, Grenada, Guatemala, Mexico, Panama, Paraguay, and Peru..

Learn More

Project webpage: https://comrural.hn/

Project Implementation Unit webpage: http://www.investhonduras.hn/

Related: The World Bank in Honduras