INCLUSIVE BUSINESS INSIGHTS AND ANALYTICS USING MARKET INSIGHTS TO UNDERSTAND FARMER LOYALTY: CASE #1 THE CASE OF COFFEE PRODUCERS IN NICARAGUA Highlights of the findings FIGURE 1 3 MOST DEMANDED SERVICES BY FARMERS (%) Financing 76 1. Farmer demographics. A study of Nicaraguan coffee farmers, Farm visits 55 most of whom supply a particular commodity trading com- Training 35 pany, found that 93% are male and the average age is 45. The Market information 26 mean farm size for farmers who supply the company directly Access to collection center 24 and often receive support in the form of training or other Drying 19 services is 18–19 manzanas.1 The mean size for those who Other agricultural inputs 16 occasionally supply the company at collection centers during Certification 15 harvest is about 6 manzanas. About half the coffee suppliers are below the national poverty line.2 Poverty is more concen- New technologies 13 trated among those with smaller and underdeveloped plots New varieties 12 and among those without title to land—about 50% of farmers 0 10 20 30 40 50 60 70 80 without title are below the poverty line compared with 40% of those with title.3 2. Drivers of loyalty. Developing strong, long-term, value-added FIGURE 2 FARMER RATINGS OF WELL-BEING BY SHARE OF CROP relationships with farmers influences their satisfaction and 60 loyalty. Farmers interacting directly with the company are 50 more likely than those working through third-party inter- 40 mediaries to recommend the company to others and to feel 30 satisfied with the services and advice they receive. Levels of 20 satisfaction are also higher among those with longer and more frequent contact with the company. And they are higher 10 among those working with the company than among those 0 working with its competition. -10 -20 3. Perceptions of well-being. At least 50% of the farmers reported Satisfaction Score for Farmers Satisfaction Score for Farmers that the company had a positive impact on their well-being, Selling <50% of Crop Selling 50-100% of Crop and 78% were able to provide an example of a positive change Voice Confidence in their life due to their relationship with the company. Key Empowerment Income effects included confidence in the services or advice received from the company, a feeling of greater empowerment, and Note: Ratings represent the Net Promoter score for three different questions for which each improvements in income and family well-being. Among the farmer was asked to provide a rating. These include: how confident the farmer was of the company’s advice and services, how empowered the farmer felt, and whether their family’s most common examples cited by farmers was an increase in income and wellbeing had improved. The NP score was calculated by subtracting the profits enabling them to buy more land, improve their living percentage of those who are dissatisfied (assigned a rating of 1-6 on 10-point scale) from conditions, and ensure the education of their children. those who are satisfied (rating of 9 or 10) “I acquired experience in coffee farming, which has enabled me • Service provision influences farmers’ satisfaction. Regular ac- to improve somewhat my family’s economical situation.” cess to market information has a strong influence on the “We improved our nutrition, our children are studying and with likelihood that farmers would recommend the company to the financing I was able to plant more.” their peers and on their perception of the fairness of the coffee price. Indeed, the satisfaction score for price is at 4. Value of service provision. Access to services—particularly least twice as high for farmers who receive market informa- financing, technical assistance, and market information—in- tion as for those who do not. Access to market information fluences farmers’ satisfaction and their perception of family also appears to be an area in which there is a service gap: well-being. 38% of farmers who supply the company indirectly through intermediaries reported that they regularly receive market • When asked to identify the three services they value most, information, compared with over 70% of farmers who sup- farmers most often cited financing, followed by farm visits, ply the company directly. training, and market information (figure 1). • Farmers who receive services from the company attribute improvements in their family’s lives to engagement with the 1 One manzana = 0.6972 hectares. company. Access to financing and market information has 2 The national poverty line is 19.99 córdobas, or $2.69 in 2005 international dollars adjusted the greatest influence on farmers’ feelings of confidence, for purchasing power parity. empowerment, and improved family well-being. 3 Income estimates were derived using the poverty scorecard, a survey that uses 10 simple indicators to assess whether a household is below a given income level. For more information, see http://www.microfinance.com www.ifc.org/InclusiveBusiness 5. Farmer loyalty. There is a clear correlation between a sense of satisfaction and well-being and loyalty to the company FIGURE 3 P  ERCENT OF FARMERS SELLING MORE THAN 50% OF (measured by the crop share sold to it). Farmers reporting THEIR CROP TO THE COMPANY BASED ON EACH greater satisfaction, confidence, and empowerment as well POTENTIAL SERVICE OFFERING as improved income tend to sell a greater share of their crop to the company (figure 2). Farmers who access services also 100 91% do so. About 84% of farmers who had access to collec- 84% 88% 86% 86% tion centers sold more than half their crop to the company, 80% 80 76% 76% compared with 61% of those who did not. The difference was 69% 19 percentage points for those receiving financing, and about 61% 60 10 percentage points for those receiving training and access to market information (figure 3). Given the link between ser- vices accessed and perceptions (see above), these differences 40 are not surprising. 20 6. Opportunities for tailored approaches. There are notable differ- ences among different segments of farmers in satisfaction levels with company staff or specific terms of their relation- 0 Collection Financing New Market Training ship and in service needs. Differences were found by region, Center Technologies Information farm size, and gender—indicating opportunities for adopting Received Service Did Not Receive Service tailored approaches. • Large farmers (with more than 20 manzanas) tend to place greater value on agricultural inputs, market infor- • Conversely, farmers who occasionally supply the company mation, and financial credit. Access to credit also plays a at collection points (who tend to be smaller and less inte- greater role in their satisfaction with and loyalty to the grated with the supply chain) identified access to collec- company. tion centers and drying services as highly valued services. Project Background This study was conducted with about 1,000 coffee produc- limited to an occasional coffee sale at collection points. A small ers in the Jinotega, Matagalpa, and Nueva Segovia regions sample of farmers who supply other traders were also included of Nicaragua. IFC carried out the project with an agricultural in the study; these farmers were interviewed at an annual coffee commodity trading company between July 2011 and January fair (Ramacafe) in Managua, Nicaragua, during the summer of 2012. The objective was to measure the income levels of farm- 2011. ers in the company’s supply chain and to understand, from the perspective of the farmers, how the company has affected their Key questions included these: lives. It was also designed to shed light on farmers’ perceptions, including satisfaction and sense of well-being; drivers of value 1. What are the income levels of farmers in the company’s sup- among service offerings; and factors linked to loyalty as defined ply chain? by the crop share sold to the company. IFC collaborated with 2. What services do producers have access to, and what Keystone Accountability on the project design and analysis, Nit- services do they need? lapan on data collection, and Mark Schreiner on the implemen- tation of the poverty scorecard. 3. What are farmers’ perceptions of the services the company provides and of its impact on their well-being? Farmers who were interviewed include those who directly and 4. What is the link between service provision, satisfaction, and regularly supply the company, those who supply the company loyalty? through independent intermediary coffee aggregators and cooperatives, and those whose contact with the company is ABOUT INCLUSIVE BUSINESS AT IFC IFC’s Inclusive Business team works to catalyze ideas and innovation by working with companies to turn data into insights and action— so that companies can develop and scale their inclusive businesses. To learn more, visit http://www.ifc.org/inclusivebusiness. ABOUT IFC IFC, a member of the World Bank Group, is the largest global development institution focused exclusively on leveraging the power of the private sector to create jobs and tackle the world’s most pressing development challenges. For more information on this project, please contact: Alexis Geaneotes: ageaneotes@ifc.org. Case #1 July 2014