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Impact Report Q1 2011 From the Founder and CEO The first quarter of 2011 marked a period of rapid growth, record disbursements, and deepening social and environmental impact. We surpassed our lending projections by 17 percent, disbursing $24 million to 93 small and growing businesses that source from smallholder producers in remote areas of Africa and Latin America. These rural enterprises strengthened agricultural livelihoods for 105,000 farm households in 17 countries. We continued to move into new geographies, such as West Africa, and exciting new industries, including artichokes, cotton, nuts, and sesame. Yet as we accelerate our growth, our primary focus remains on agroforestry crops such as coffee and cocoa—crops that forge an extraordinarily powerful bond between human well-being and healthy ecosystems. Consider the Amazon River Basin with its unparalleled biodiversity, water resources, and carbon sinks. The expansive forests of the Amazon trap greenhouse gases and produce more than 20 percent of the world’s oxygen. The Amazon’s watershed nourishes local agriculture, livelihoods, and human health. Yet here and across the world, economic stagnation and environmental degradation go hand-in-hand. Without viable livelihoods, rural people are forced into short-term money-making strategies like slash-and-burn agriculture and unsustainable logging. Ultimately, this triggers a downward spiral of ecological destruction that further spurs abject poverty. Root Capital’s clients provide a stable economic environment that helps reverse that vicious cycle. In the upper basin of the Amazon watershed, particularly in Peru, Colombia, Ecuador, and Bolivia, we support dozens of farmer cooperatives and agricultural entrepreneurs who are practicing climate-smart agriculture. For example, we finance coffee and cocoa enterprises that maintain tree cover by cultivating shade-grown crops while providing employment opportunities and stable incomes to rural communities. Across the globe, agricultural markets are demanding higher social and environmental performance of commodity production chains. Working with nearly one hundred buyers from North America and Europe, Root Capital helps meet that demand by providing financing that enables farmers and forest communities to maintain natural resources in the face of encroaching deforestation and industrialization. The following pages describe an example of one Root Capital client, Mountain Coffee, which aggregates more than 450 farmers practicing shade-grown agriculture in the eastern foothills of the Peruvian Amazon. I hope you are as inspired as I am by the tremendous power of capital and markets to grow rural prosperity and protect our environment. Sincerely, William F. Foote Client Profile: A.P.C.E. Mountain Coffee Eliseo Condor Ayre is a small-scale producer of shade-grown organic coffee in Chanchamayo, Peru’s coffee center nestled in the lush, eastern slopes of the Andes. Peru is home to the largest number of bird species in the world and the third largest number of mammals, the majority of which are concentrated in the high Andean jungle and neighboring lowlands. These foothills owe their rich biodiversity to the Amazon River and its tributaries, which weave together the most complex ecosystem in South America. Yet, the Amazon hangs in a precarious balance, threatened by increasing pressure to convert tropical forests into croplands and a lack of economic options for the region’s inhabitants. As a result, people in this region have typically turned to the immediate economic benefits of logging and clear cutting. Alternative models exist: ones that anchor on the link between creating sustainable economic wealth and conserving the environment. “We entered the world of environmental conservation as a result of certain demand from our buyers,” says Eliseo, who is also the general manager of the Asociación de Productores de Cafés Especiales (A.P.C.E.) Mountain Coffee, a 10 year-old coffee cooperative with more than 450 members that has been a Root Capital client for three years. “Because of that, we produce organic coffee and sustainable coffee.” The shade-grown organic coffee produced by Mountain Coffee is planted among other, taller trees, often alongside other subsistence or cash crops; it can thus be incorporated into existing farming and agroforestry systems or polyculture production systems. A traditional shade-grown coffee farm often resembles a forest because of its many layers of trees, which support numerous plant, animal, and bird species. Shade-grown coffee trees also boast a longer productive life than their sun-grown counterparts and can play a role in helping farmers adapt to climate change: recent studies reveal that shade canopy produces a cooling effect of 3–7 degrees Fahrenheit, which helps maintain product quality by offsetting rising temperatures and pest outbreaks. By linking economic opportunities with environmental stewardship, Mountain Coffee is providing a positive model for protecting the fragile biodiversity of the Amazon. Increasing demand for specialty coffee in global markets has clearly played an important role. “The success of Green Mountain Coffee is inextricably linked to the success of our farmers and planet,” says Michael Dupee, Vice President of Corporate Social Responsibility for Green Mountain Coffee Roasters, Inc. “By purchasing Fair Trade Certified organic coffee from environmentally and socially responsible producers like Mountain Coffee, we’re able to reduce our environmental footprint, strengthen our value chain, and meet the burgeoning demand for specialty coffee head on.” At Mountain Coffee, credit and commodity markets have led to economic development and environmental conservation. Eliseo reflects, “If it weren’t for the opportune financing we receive from Root Capital, we might not be able to realize our plan to foster quality, better organic production, and social responsibility.” Above: Eliseo Condor Ayre, Mountain Coffee’s general manager and a small-scale producer of shade-grown coffee. Facing: Coffee cherries ripening on a tree. CLIENT A.P.C.E. MOUNTAIN COFFEE COUNTRY PERU PRODUCT COFFEE LOAN TYPE TRADE CREDIT LOAN AMOUNT $850K (2011); $600K (2010); $200K (2009) PRE HARVEST CREDIT $150K (2011) AMAZON RIVER BASIN PERU COFFEE AT A GLANCE THE AMAZON BASIN AT A GLANCE The specialty coffee industry is worth approximately $60 billion worldwide. It is a primary export for many developing countries, with as many as 25 million people depending on coffee for their livelihoods VALUE Peru is one of the leading exporters of fair trade and organic coffees Biodiversity: the Andean mountain range and the Amazon Rainforest are home to more than half of the world’s species of flora and fauna Water resources: one-fifth of the world’s fresh water is in the Amazon Basin Carbon sinks: in a normal year, the Amazon Rainforest absorbs 1.5 billion tons of carbon dioxide and produces more than 20 percent of the world’s oxygen Eighty percent of the world’s coffee is produced by smallholder farmers Shade-grown coffee contributes to the maintenance of soil quality and habitats for numerous species of plants, birds, and other animals Mountain Coffee Ecosystems: critical to agriculture, local livelihoods, and human health THREATS Deforestation at a rate of 20,000 square miles each year due to escalating pressure to convert tropical forests into croplands Expanding emissions of greenhouse gases from the region, potentially doubling current emissions which are now about four percent of the world-wide total Species loss Contamination Pollution and oxygen depletion in streams and rivers Disruption of indigenous and traditional agrarian communities ROOT CAPITAL PERFORMANCE DASHBOARD Q1 2011 For a complete review of Root Capital’s dashboard, please see our Quarterly Performance Report. This report is produced for all financial partners and supporters and is available on our website at www.rootcapital.org/performance. $24M/93/95/$47.5M/ 105K/$171M/$134M/ 21K/172K/30/ Loan disbursements Borrowers Farmers/Artisans reached Female farmers/ artisans reached Loans Outstanding portfolio Enterprise revenue Hectares under sustainable cultivation balance Enterprise payments to rural producers Rural producer groups trained ROOT CAPITAL IMPACT Through our Lending program and Advisory and Training activities, Root Capital strengthens rural small and growing businesses (SGBs). While our ultimate goal is to improve farmer household income, our financing also strengthens local communities, promotes sustainable landscapes, and increases the availability of commercial sources of capital. Outputs: Capital and Financial Training We disbursed $24M to 93 rural SGBs and trained managers from 30 enterprises during Q1. Enterprise Level Outcomes: Small and Growing Business Growth In Q1, our borrower enterprises generated $171M in revenue. Household Level Outcomes: Higher/Stable Incomes and Improved Livelihoods Our clients purchased $134M in coffee, bananas, cashews, cocoa, cosmetic ingredients, cotton, fisheries, handcrafts, mango, rice, seeds, sesame, shea butter, spices, and vegetables from 105,000 local suppliers during Q1. On average, these purchases contributed $1,285 to annual household income. Community Level Outcomes: Sustainable Landscapes and Gender Equality In Q1, we supported approximately 21,000 women producers. In addition, our clients managed nearly 172,000 sustainable hectares of agricultural, forested, and wild-harvested land. Capital Market Level Outcomes: Dynamic Capital Markets and Rural Economies In Q1, 37 percent of our borrowers accessed commercial capital. Our clients also received $1.5M in co-investment loans from our partner financial institutions. For additional information, please go to www.rootcapital.org or email [email protected]. ©2011 Root Capital. All rights reserved.