Neumann Kaffee Gruppe (NKG) describes itself as the world’s leading green coffee service group – a claim that is certainly reinforced by the group’s win in the Sustainable Finance category and overall winner of this year’s Deals of the Year Awards.
Launched in 2019, NKG’s sustainable sourcing strategy NKG BLOOM aims to positively impact smallholder coffee farmers’ livelihoods by enabling farmers to run their farms at full potential and maximise their incomes, while also growing and strengthening the company’s green coffee supply chains.
In practice, this means setting up Farmer Service Units in coffee-producing countries and giving farmers access to finance so they can invest in their farms.
The scope of this deal therefore involved putting in place a 10-year, $25m revolving credit facility (RCF) that would provide loans to smallholding coffee farmers in developing countries, enabling them to finance their farms and obtain raw materials such as fertiliser and seedlings, as well as access to education, technology and knowledge.
NKG appointed ABN AMRO to structure the RCF, in which partner banks share the direct risks on farmer defaults. The facility is also backed by two complementary default guarantees by the US Agency for International Development and IDH, the Sustainable Trade Initiative.
A financing framework sets out clear criteria for investments in projects and activities, and contributes to several of the UN Sustainable Development Goals, especially that of Zero Poverty.
Under the facility, loans can be provided to smallholder farmers for a variety of purposes, including medical emergencies, household expenses and input materials such as seedlings and fertiliser. The loans range from short-term loans of one year or less to long-term loans of up to seven years.
After loans have been drawn, the net proceeds are managed by local NKG treasury teams on a portfolio basis, with farmers expected to pay back loans in the form of coffee beans sold to the relevant NKG export company.
While the concept itself has some familiar components – the project brings to mind the historical use of Red Clause Letters of Credit in the Australian wool trade – the judges were impressed by the social elements of the deal, which differentiated this project from other prospective winners.
The initial focus of the initiative is on Colombia, Honduras, Kenya, Mexico and Uganda, with more countries to be added in the coming decade. The longer-term goal is to reach 300,000 coffee families in at least 10 coffee-producing countries by 2030.
“Neumann’s deal stood out from the pack. When it comes to ESG, there’s often more emphasis on the ‘E’ and not as much on the ‘S’ and ‘G’, which makes this deal particularly interesting.”
Providers: ABN AMRO (mandated lead arranger, facility agent and structuring bank), with Rabobank and BNP Paribas as original lenders
Structure: $25m long-term and short-term RCF facility, enabling NKG to provide loans to coffee farmers
This article was taken from the October/November 2020 issue of The Treasurer magazine.
