September 30, 2011 | Andrew Burger

Small and medium-sized organic and fair trade agricultural businesses are expanding despite sputtering economies and the slowdown in global economic growth, thanks in part to organizations such as Root Capital, a non-profit whose mission is to pioneer finance, build stronger market connections and provide financial training for grassroots businesses in rural areas.

Having recently been awarded a $4.9 million loan package from the Inter-American Development Bank’s Multilateral Investment Fund (MIF), Root Capital is investing $3 million to expand its lending program for sustainable co-ops and agricultural SMEs (small and medium-sized enterprises) in Honduras, Guatemala and Nicaragua. 

The remaining $1.9 million will be devoted to a technical assistance initiative that will help these agricultural groups improve their financial skills, the MIF announced August 4. In addition, according to press release from the Inter-American Development Bank, Root is expected to raise an additional $13 million in financing by establishing partnerships with local banks and micro-finance institutions.

“The last 10 years have seen a great expansion in exports by coops and grower’s associations in Latin America to higher-value markets such as organic and fair-trade,” said MIF Team Leader Alejandro Escobar. “Consumers are demanding sustainably-grown, ethically-sourced products and those in the developed world are willing to pay a premium price but without access to adequate finance, rural communities are unable to capitalize on this booming demand for their specialty products.”

The experience of India’s organic cotton industry has demonstrated the ability of sustainable agriculture to support sustainable livelihoods for small-scale rural farmers while also preventing the environmental ills, such as water resource contamination and depletion, soil nutrient depletion, soil erosion, soil salination and desertification, affecting growing number of agricultural regions around the world, notes an article on Care2’s website entitled, “Sustainable Farming and Livelihoods Take Root.”

The growth of organic and fair trade agricultural groups remains constrained by lack of access to financial capital and skills, however.  And that’s not all.  Longstanding cultural practices in various countries have traditionally victimized small, rural farmers.

“The hundreds of thousands of farmers in India that were mired in insurmountable debt and driven to suicide have served as a tragic, cautionary tale of what’s truly at stake when it comes to agriculture, lending, and volatile commodity prices,” notes the Care2 article.  That’s where Root Capital sees an opportunity to leverage the skills and knowledge of its employees to develop meaningful solutions.

Founded in 1999, the Cambridge, MA-based organization’s approach is to tackle these issues from multiple perspectives and over the long-term.  Dubbed “patient capital,” loans are for longer term with contracts from buyers, such as Green Mountain Coffee Roasters, Marks & Spencer and Whole Foods, taken as collateral.

Root helps rural farmers to make connection with these businesses, and also offers them financial education and training so that they may better manage their businesses and negotiate the vagaries of local and international markets for agricultural commodities.