How the Quadripartite model created a level playing field for local farmers
Digging at the roots
While nearly 95 percent of coffee produced in Vietnam is Robusta, Quang Tri Province—with over 5,000 hectares of coffee—cradles one-seventh of the country’s Arabica production. Evidently, almost 8,000 households in the province rely on Arabica as their main source of income.
“Income from coffee in recent years should be OK,” said Mr. Ho Minh Phong, leader of Huong Do Farmer Group. “But it’s really better than previous years. My life, as well as the other’s here, had gone through many ups and downs with coffee trees since 1995.” Phong recalled when thousands of people left their homes in the lowlands empty-handed and traveled hundreds of kilometers to the wild and desolate areas of Huong Hoa district to seek a better life. Through years of developing their livelihoods, Huong Hoa has evolved into the coffee-producing district it is today.
Akin to any industry, the coffee sector in Huong Hoa district had its own share of challenges characterized by short-term benefits and unhealthy competition among the coffee value chain actors. Factories and traders manipulated prices by buying coffee cherries far less than their actual value while farmers cheated by soaking coffee cherries in water or by mixing foreign substances to make it heavier. Limited knowledge on proper cultivation and poor harvesting practices resulted to low productivity levels, which coffee growers attempted “to correct” by using fertilizers. However, due to the lack of access to finance, farmers purchased fertilizers on credit with high interest from trading agents whom they had to pay back with cherries at undervalued prices. They even resorted to poor quality or fake fertilizers. These factors eventually led to the decline of the coffee sector, which adversely affected the lives of local farmers. “Since our main income from coffee became unstable, many of us left our coffee trees uncared for, replaced them with planting other crops or even sold our coffee gardens,” Phong explained. Despite efforts of the local government and other relevant organizations, changes appeared to be dim and the situation remained stagnant.
Troubled by the situation, local farmers aspired for change but initially lacked the ability to turn things around. In 2013, Mekong Institute launched the project on “Regional and Local Economic Development on the East West Corridor” (RLED-EWEC) in Quang Tri, signaling what would be the start of a turn-around for the province’s coffee sector.
Anchored on promoting coffee market development, the project started with a comprehensive analysis of the coffee value chain from which the Quadripartite model was developed. Taking after the Making Markets Work for the Poor (M4P) approach, the Quadripartite model equips farmers with collective bargaining power by capacitating them on group management and operation. This market linkage enables farmers to increase income through reducing productions costs by facilitating better access to loans with preferential interest to buy quality fertilizers at cheap price, and through directly selling coffee cherries at higher price to processing companies. As its name suggests, the model involves four parties—farmers group, commercial bank, fertilizer company, and processing company—all linked together for mutual exchange and benefit.
Implementing the project was not an easy feat as it faced challenges and constraints in operation. In 2014, out of 15 farmer groups that MI established and supported, only one of them operated effectively. This group pioneered in directly selling their coffee cherries to one big processing company and earned an additional amount of USD 350/household, and saved an amount of USD 72/ton of fertilizer. Some farmers were committed at first but eventually settled to their old ways and harvested unripe coffee cherries. “It is not always easy for farmers to work together, even in my group at that time,” said Phong. “There are too many issues to deal with.” In this case, farmer group operations were challenged with issues concerning leadership, commitment, and compliance to group regulations. Ms. Thanh, a female member, said: “I saw some people who were committed at first, but later on, they still harvest unripe ones.” In many cases, the price offered by the processing companies devalued the farmer groups’ efforts. “We worked hard to supply high quality cherries,” a leader of an inactive farmer group said, “but finally the price offered by the factory was unreasonable, even lower than that of local collectors.”
The MI project team then closely worked with relevant stakeholders to underscore the need for farmer group strengthening. Numerous meetings with farmer groups were held to raise awareness and provide technical support. “I still remember when we organized another meeting to get a consensus on our business plan and arguments echoed in the room,” said Ms. Ho Thi Loi, a member of Sa Ry farmer group. She continued, “Luckily, Mr. Le Van Binh, who later became the group leader, stood up and asserted: I agree with you all that it is not easy to work in a group but it is no better to work individually. If we go back to selling coffee cherries as before, it will only pull us a step backward. There is no real change. ” That particular meeting lasted past midnight from which a strategic business plan for coffee cherries was developed. Sa Ry farmer group would eventually turn into one of the most successful groups cooperating with a leading company in the area, encouraging other groups to also adopt the model.
Since then, the number of MI-supported farmer groups in operation has steadily increased. The project recorded nine, 15, and 18 effectively operating farmer groups in 2015, 2016, and 2017, respectively, with around 25-30 members comprising each farmer group. Additionally, there were 15 farmer groups established over the past year by another international non-government organization that received technical support from MI in establishing direct linkages with processing companies.
From 2014 to 2016 alone, MI farmer groups enjoyed preferential loans to purchase fertilizer at cheaper price, allowing them to save USD 27,500 in total for three years. Moreover, by directly selling coffee cherries to companies at competitive rates, they earned an accumulated amount of USD 2.2 million.
Transcending financial benefits, MI’s intervention has also contributed to more sustainable farming practices. “The coffee market in Huong Hoa has significantly improved in recent years. For one, many villages have discontinued the deliberate soaking of cherries in water,” said Mr. Ho Van Cai, Chairperson of Khe Sanh Coffee Association. Of course, challenges in the coffee sector remain but it has taken a huge leap from its former condition especially now that farmers are realizing the viable benefits of producing high quality coffee cherries.
As a result, more and more processing companies have also begun to cooperate with the farmer groups, partly contributing to price corrections. “Collaborating with farmer groups means that the quality of coffee is higher than that of the dealers,” said Mr. Tran Quang Hai, Director of Dai Loc Co., Ltd., one of the biggest coffee export companies in the district. “If we sell the best quality of coffee to the international market, we can earn 5 cents per kilogram. This means that with better quality coffee we can earn an extra USD 1/kg as the difference of market price over per kilogram of raw materials,” he stated. Another enterprise, Minh Tien Coffee Import-Export Co. further added, “Our enterprise also benefits a lot from cooperating with the farmer groups because processing clean coffee helps in reducing costs. Particularly, the enterprise can require the dealers to collect clean coffee to compete with the farmer groups.”
Similarly, farmer groups enjoyed their savings from lower fertilizer costs, which influenced the price adjustment of other fertilizer retailers. A member of a farmer group said: “A lot of farmers in my village always ask local agents how come they sell fertilizers with higher price than that enjoyed by Mekong farmer groups.” As a result, local agents had to adjust their prices to attract buyers. Mr. Tho, an agent in Huong Phung commune, frankly shared: “I used to earn higher profits from selling fertilizers, but that has changed in recent years. At this point, I need to lower product markup to be able to compete with the prices that farmers purchase in the model.”
Extracting “Cs” for sustainability
The success of the Quadripartite model among the coffee farmers in Quang Tri has relied heavily on the farmer groups’ capacity. MI has channeled priority to facilitate changes in awareness, behaviors, and practices among local farmers to equip them with a sense of accountability, ownership, and leadership. This has empowered them to directly communicate with company directors and negotiate for favorable prices. “Previously, we couldn’t meet directors of processing companies. We merely relied on their staff to convey our messages, but unfortunately, failed to do so. Now, we can talk to company directors face-to-face and are able to negotiate the price ourselves,” said Phong.
Once capacities are in place, mutual connections among key actors in the coffee value chain are systematically re-structured and formed. Farmers sell quality coffee cherries at higher prices with reduced production costs while service providers have larger market share and trade volume with lesser processing and operation costs. Not only does this arrangement benefit the respective stakeholders but more importantly, the linkages are bound to create a wider impact to the coffee market in the region.
Finally, the cooperation and commitment of all stakeholders strengthen the linkage. To encourage farmers to avail financial loans, a commercial bank in Huong Hoa has expressed its support by providing flexible conditions with preferential interest rates. A leading fertilizer company in Quang Tri has also affirmed its commitment to MI-supported farmer groups by “retaining the existing factory price of fertilizers despite significant price increase in the coming future.”
As the RLED-EWEC project moves into its phasing out phase, the emphasis has now shifted to scalability and sustainability. MI will continue to work with farmer groups, but it will give local technical agencies from the public sector more space as they assume the coordinating role with the communities.
With the model’s success in the coffee industry in Quang Tri, the project is also exploring the feasibility of implementing it to other crops particularly black pepper and rubber. Driven by its ambition of wider impact, the project ultimately aims to connect farmer groups to the broader coffee sector in Vietnam and enable the formation of an alliance that will lend a more collective voice and encourage a more efficient sharing of resources. As Phong emphasized, “We hope for a better life. We were given an effective way of working. We have exercised it and succeeded. The most important thing now is to regularly strengthen the group, develop active membership, and introduce the model to neighboring villages.”