Coffee farmers in Latin America constantly need working capital during their planting and harvesting seasons to be able to pay for the products, equipment and labor required to grow their coffee crops. These farmers’ options for accessing local funding are extremely limited and often unaffordable. Equal Exchange, a US-based fair trade coffee company that regularly purchases coffee from these farmers, decided to use its own company balance sheet to help these farmers by purchasing their coffee early with some discount.
Equal Exchange intentionally bought stock from farmers soon after harvesting, many months before it expected to sell it in the US, and stored it in its own warehouse facilities. This approach is distinct from traditional coffee companies’, which purchase coffee beans on demand when they need to sell them. The traditional on-demand approach keeps the large coffee companies inventory low but requires the farmers to bear the cost of storing the coffee and managing their cash flow while they wait for buyers to purchase their stock. Equal Exchange’s approach shifts the inventory burden off farmers’ balance sheets and onto those of Equal Exchange.