Investment: Acquisition of a coffee processing plant, i.e. a vertical integration
Total estimated capital expenditure: 501.000 USD over three years
Investment type: Subordinated debt over five years
Total loan amount: 324.000 USD
Co-investor: ICCO, contributing 100.000 USD
Maximum exposure for Kampani: 214.000 USD plus guarantor for purchase of factory
In portfolio since: March 2016
HORAMAMA COFFEE DRY MILL was set up in January 2016 by the Fairtrade certified Burundian coffee exporter COCOCA, a union of smallholder cooperatives, to hull and store coffee beans – an activity which up to that point was outsourced to third parties. To this end, Horamama acquired an existing hulling plant in Ntarambo in the northern part of Burundi (area of Kayanza/Ngozi).
Hulling is the last link in the value chain before export, and transforms parchment coffee into green coffee. All earlier steps in the process i.e. the production itself and the transformation from cherries into parchment coffee are carried out by the base cooperatives in their own washing stations.
To help finance the purchase of the hulling plant, COCOCA reached out to Kampani via the King Baudouin Foundation (a Kampani shareholder). Of the 501,000 USD required, Kampani provided 324,00 USD in subordinated debt for a five year agreement. ICCO co-invested an additional 100,000 USD.
Via the loan agreements Kampani secured a mission lock, Horamama provides annual data points, such as those described below, allowing Kampani to monitor the social impact on smallholder farmers. If any dividends are paid out, they will be disbursed within the framework set by the Fairtrade system.
The social impact
COCOCA remains the only co-operative player on the Burundi market to own its own dry mill. Horamama, in terms of volumes processed, was the largest in Burundi in 2019 as a number of hulling mills went out of business. COCOCA now represents 15% of national production, a 7% increase since the creation of the dry mill. They have increased their membership from 32 cooperatives to 40, representing over 27.000 farmers.
The vertical integration has dramatically improved access to the hulling service for the smallholder farmers and their cooperatives, with better processing and storage services. As a result, coffee flows are better rationalized and the removal of the previous bottlenecks has enabled the cooperatives to sell more coffee to COCOCA. The investment has also allowed COCOCA to improve the traceability and quality control to better meet the requirements of specialty coffee markets. In 2019, roughly half of the processed volume was Fairtrade or Utz certified. Finally, the added value of the hulling service itself remains within the group.
Partnership at work
Thanks to the following partners, Kampani was able to overcome the constraints of the missing middle:
The King Baudouin Foundation: The KBF has provided support to COCOCA for several years, and first identified this deal for Kampani. The KBF played a crucial role during the deal-making phase on several levels. The KBF will also bear the cost of the insurance premium for the political risk cover for the duration of the loans.
ICCO: Kampani invited ICCO to co-invest because of the added value it could bring to this particular investment. ICCO’s Agri Business Booster supports promising agribusinesses in a hands-on way, through a tailor-made set of investments and business development services. In addition, ICCO also has a traditional NGO presence in Burundi. Its country director was appointed by Kampani and ICCO as an independent member of the Board of Horamama.
Broederlijk Delen: Broederlijk Delen has supported COCOCA for several years with technical assistance. It is in large part thanks to their success that COCOCA was in a position to take this next leap in its development. Broederlijk Delen’s country director was appointed by Kampani and ICCO as an independent member of the Board of Horamama.
Alterfin: Alterfin has provided working capital at the level of COCOCA for several years. Alterfin was therefore excellently equipped to carry out the due diligence as Kampani’s portfolio manager. Its continued engagement at the level of COCOCA will ensure an additional communication channel.