Expansion of sustainable coffee production

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Expansion of sustainable coffee production

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Country

Dominican Republic

Sector

Food and Beverage

Sub Sector

Food and Agriculture

Indicative Return

15% - 20% (in IRR)

Investment Timeframe

Medium Term (5–10 years)

Market Size

> USD 1 billion

Average Ticket Size (USD)

< USD 500,000

Direct Impact

Indirect Impact

Business Model Description

Coffee production and processing, utilization of harvesting equipment for optimized yield, the renovation and planting of coffee plantations to boost national output, and establishment of coffee shops for both local consumption and international sales through exports.

Expected Impact

The use of sustainable production practices in the coffee sector will increase its productivity, resilience and increase market participation.

How is this information gathered?

Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.

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Disclaimer

UNDP, the Private Finance for the SDGs, and their affiliates (collectively “UNDP”) do not seek or solicit investment for programmes, projects, or opportunities described on this site (collectively “Programmes”) or any other Programmes, and nothing on this page should constitute a solicitation for investment. The actors listed on this site are not partners of UNDP, and their inclusion should not be construed as an endorsement or recommendation by UNDP for any relationship or investment.

The descriptions on this page are provided for informational purposes only. Only companies and enterprises that appear under the case study tab have been validated and vetted through UNDP programmes such as the Growth Stage Impact Ventures (GSIV), Business Call to Action (BCtA), or through other UN agencies. Even then, under no circumstances should their appearance on this website be construed as an endorsement for any relationship or investment. UNDP assumes no liability for investment losses directly or indirectly resulting from recommendations made, implied, or inferred by its research. Likewise, UNDP assumes no claim to investment gains directly or indirectly resulting from trading profits, investment management, or advisory fees obtained by following investment recommendations made, implied, or inferred by its research.

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Country

Dominican Republic

Region

Cibao Norte
Cibao Sur
Cibao Nordeste
Cibao Noroeste
Valdesia
El Valle
Enriquillo
Yuma
Higuamo
Ozama

Learn more

Sector

Food and Beverage

Development need
Developing countries have a high dependence on food imports, affecting domestic supply, discouraging agricultural activities and increasing food insecurity (1). By February 2023, 1.5 million people in the DR were in acute food insecurity crisis or emergency, with 54.1% of households in rural areas experiencing a high prevalence of moderate or severe food insecurity (2, 3).

Policy priority
The National Development Strategy (END) establishes in its objective 3.5.3 to increase the productivity, competitiveness and environmental and financial sustainability of agricultural production chains, in order to contribute to food security, take advantage of export potential and generate employment and income for the rural population (4).

Gender inequalities and marginalization issues
Only 25% of women own land in the country. Rural women work at a disadvantage compared to men, with greater difficulty in accessing land, credit, participation in decision-making, specialized technical training and access to agricultural inputs and other government services (5).

Investment opportunities introduction
In the year 2022, the annual growth rate of agricultural economic activities represented 5.0% in their contributions to the Gross Domestic Product. This sector represents opportunities for export and food production whose contribution to GDP in 2022 was 16.18% (6, 7).

Key bottlenecks introduction
Lack of innovation in the food and beverage sector is low to keep creating new products and adapt to new risks. Increased R&D will create a more sustainable and resilient business sector in the face of climate change shocks (8).

Sub Sector

Food and Agriculture

Development need
agriculture is a sector that faces climate risks and is important for the Dominican economy. It supplies 85% of domestic food consumption. In 2017, 2 hurricanes caused an estimated US $23.02 million in losses (9). There is a need to improve agricultural productivity through innovation, product transformation and use of better production practices (10).

Policy priority
The Dominican State has the political priority of promoting the development of food systems and achieving food sovereignty and security. Among these are the Strategic Agricultural Sector Plan and the National Plan for Food Sovereignty and Security (11, 12).

Gender inequalities and marginalization issues
Only 8% of women are engaged in agriculture, livestock, forestry and fishing activities. While 70% of the workforce in agriculture is male. In addition, workers in this sector are below the average wages paid in the Dominican economy earning in 2019 an estimated US $1.47 per hour (2).

Investment opportunities introduction
The Dominican Republic is recognized for its leadership in the production and export of food and beverages such as cigars, cocoa, rum, organic bananas, avocados, peppers, among others (13). Eighteen percent of the country has arable land representing an approximate of 877 thousand hectares, of which approximately 10% has irrigation systems (14, 15).

Key bottlenecks introduction
The challenges facing the agricultural sector are related to low crop productivity, increasing returns on investment, market instability, small landholdings, land ownership and poor plantation management. In addition, limited access to commercial credit financing for the sector (16).

Industry

Agricultural Products

Investment Opportunity Area

Expansion of sustainable coffee production

Business Model

Market Size and Environment

Market Size (USD)

> USD 1 billion

CAGR

5% - 10%

Globally 1.1 million farmers in the world produced between 2 to 4.5 million tons of coffee. This generated a market for 19 of up to US $11 billion. Likewise, coffee production has not decreased with an annual growth of up to 4.28% and in continuous expansion (19).

In the Dominican Republic, by the year 2022, national coffee production had an interannual increase of 13.1% (6). In the same year, coffee exports were 151,765.28 quintals for a total of US $34 million (20).

Indicative Return

IRR

15% - 20%

Investment in coffee social enterprises despite the high volatility of the market can be from 6% to 19% (21). In addition, it is estimated that the global coffee sector generates annual revenues in excess of US $200 billion (22).

Investment Timeframe

Timeframe

Medium Term (5–10 years)

For the cultivation and maintenance of coffee, the estimated cost of production per task is approximately US $170 (23). For 2019, the cost of production over a 10-year period is approximately US $3.5 thousand per hectare (24).

Ticket Size

Average Ticket Size (USD)

< USD 500,000

Market Risks & Scale Obstacles

Market - Volatile

Although coffee consumption and demand is high, prices on the international market affect coffee producers with an unstable income.

Business - Supply Chain Constraints

The inadequate handling of coffee and low quality of drying represents one of the greatest challenges that the coffee production chain faces and the mixing of high-quality coffee with low quality coffee. This can lead to the loss of markets (25).

Market - High Level of Competition

90% of the coffee production for national consumption is processed by a single company, this represents an asymmetry and disparities in the local market leaving 10% to small coffee processors (26).

Sustainable Development Need

The decrease in national coffee production due to the effects of rust generated economic losses for this sector and livelihoods for coffee producers. The Dominican Republic went from producing 40 thousand tons per year between 2009-2010 to 9 thousand tons in 2015 (26).

High dependence on coffee imports for local processing. Coffee imports exceed 15,000 tons per year and domestic production is less than 5 thousand tons per year (26).

Gender & Marginalisation

The small scale of production and low level of productivity of traditional small coffee farmers does not guarantee the economic subsistence of the family and the availability of income for investments aimed at improving productivity (26).

Despite being a large and scalable market, in the coffee value chain the farmer receives an average of US $0.40 for each coffee sold in the world (27).

Less than 10% of coffee producers are women, representing a low participation in the sector.

Expected Development Outcome

Increase domestic coffee production through sustainable agricultural practices that guarantee its scalability and protection against diseases.

Reducing dependence on coffee imports from the coffee producing and industrial sector.

Gender & Marginalisation

Small coffee producers increase their income and invest to increase their productivity.

Increase the income of coffee producers through measures to guarantee a fair price for their production.

Increased participation of women in the coffee sector.

Primary SDGs addressed

2 - Zero Hunger

2.4.1 Proportion of agricultural area under productive and sustainable agriculture

Current Value

Organic agriculture accounts for 4% of the total agricultural land in the Dominican Republic (28).

Target Value

Increased competitiveness and profitability of the agricultural sector (29).

8 - Decent Work and Economic Growth

8.1.1 Annual growth rate of real GDP per capita

Current Value

In 2022, the annual per capita GDP growth rate was 3.8% (29) and the average wages in the+AG269 agricultural sector are lower compared to other productive sectors. In 2019, the hourly income was RD$72.5 (30).

Target Value

Formal employment rate in the agricultural sector from 12.8% to 14.7% (29).

17 - Partnerships For the Goals

17.11.1 Developing countries’ and least developed countries’ share of global exports

Current Value

By 2022, the Dominican Republic's share of global exports of goods was 0.1%, with an annual growth rate of 5%. In the year 2021, exports of services represented 0.13%, with an annual growth rate of 5% (31).

Target Value

Percentage share of agricultural activities in the national and international demand for products and services from 2.6% to 2.9% (29).

Secondary SDGs addressed

1 - No Poverty

Directly impacted stakeholders

People

An estimated 28,000 coffee producers.

Gender inequality and/or marginalization

According to the 2015 agricultural census, 318,000 people planted agricultural products. Of this population, only 10% are women.

Planet

The use of agroforestry systems for coffee production can mitigate the effects of climate change for this agricultural product.

Corporates

More than 23 registered coffee exporting companies, and approximately 94,593 establishments with workspaces where coffee is provided.

Corporates

Ministry of Agriculture, and Ministry of Environment, Banco Agrícola.

Indirectly impacted stakeholders

People

Rural people engaged in agricultural production

Outcome Risks

Increased exports of coffee products and its derivatives to the neglect of the local market.

Increasing the productivity of the coffee sector of individuals and companies with greater technical capacity and not benefiting smaller agricultural producers.

Impact Risks

Increase in coffee prices, resulting in an uncompetitive supply compared to other markets.

The use of non-agroforestry monoculture techniques affecting soil quality.

Disproportionate growth of the coffee sector, where micro enterprises cannot compete.

Impact Classification

B—Benefit Stakeholders

What

Increase coffee production capacity in a sustainable manner.

Who

Producers and industries of the coffee sector in the Dominican Republic with lower levels of productivity.

Risk

Only a small number of coffee producers and industries in the coffee sector practice sustainable agricultural practices.

Contribution

Development of better practices for sustainable production in the country.

Impact Thesis

The use of sustainable production practices in the coffee sector will increase its productivity, resilience and increase market participation.

Policy Environment

National Development Strategy 2030 creates the basic conditions that favor the synergy between public and private actions for the achievement of the Long-Term Vision of the Nation and the Objectives and Goals of said Strategy (4).

Strategic Plan for the Agricultural Sector (12).

National Food Sovereignty and Security Plan to reduce food insecurity (11).

Financial Environment

Financial incentives: Foreign investors, whether natural or legal persons, have the right to remit abroad, in freely convertible currencies, without the need for prior authorization (33).

Fiscal incentives: suspension of import taxes on the entry of products that are later re-exported or used as raw material for export products and tax exemptions for the importation of machinery and vehicles for agricultural and livestock use (34, 35).

Other incentives: Residence Permits for Investment Program, through an agreement with the General Directorate of Migration, having as a prerequisite the Certificate of Registration of Foreign Direct Investment (33).

Regulatory Environment

Land tenure and land reform laws, as well as plant and animal health (36).

Private Sector

Coffee producing and processing companies such as Spirit Mountain Coffee, Café Maguana, Q Coffee Industry SRL, Café Samir, Café Monte Alto.

Government

Ministry of Agriculture, INDOCAFÉ, IIBI, and IDIAF.

Multilaterals

WFP, FAO, UNDP, IDB, and EU.