Coffee and a Cause: How a New Fund is Improving Farmer Livelihoods in Colombia and Beyond
In 2023, MCE Social Capital launched its first investment fund focused on sustainable agriculture, with catalytic funding from USAID INVEST to support the fund’s design and structuring. One of the MESA Fund’s first investments was Azahar Coffee Company, a small business that sources coffee from over 5,000 smallholder farmers in post-conflict areas of Colombia. The company’s impactful approach is evident in the premium prices it pays to its producers, its commitment to traceability and transparency, and its environmental initiatives.
This story originally appeared on Agrilinks. Read the original piece here.
By Natalie Alm, INVEST Strategic Communications Advisor
In 2010, Tyler Youngblood was a recent graduate with a degree in literature road tripping around South America. Fourteen years later, he’s the co-founder and CEO of a growing sustainable coffee company, sourcing coffee from small-scale farmers in post-conflict areas of Colombia and working to increase traceability and transparent pricing across the industry to benefit those farmers.
The beginnings of Azahar
Tyler was traveling with a friend, Keith Schuman, in Colombia when they struck up a conversation in a Juan Valdez coffee shop. The conversation soon led to an invitation to a farm outside the city and a three-hour master class in coffee production.
“All we could think about was how cool it would be to drink your own coffee,” Tyler reflects. But the farmer told them that all the beans he sold were mixed in with other coffee beans, and that in fact he and his peers drank a cheap supermarket coffee that ironically wasn’t even made from Colombian beans. “We heard these stories and just had this thought — was there a way to have coffee from individual farmers make it to consumers intact?”
And so began Azahar Coffee Company. Tyler and Keith spent several years learning as much as they could about the coffee business, from growing to roasting to exporting. They learned that Colombia is the third largest producer of coffee, and about half a million families base their livelihoods on coffee production. However, coffee is a highly informal sector — less than 5% of workers are considered permanent employees.
Taking what they learned, the pair began selling roasted coffee, centering the stories of the producers themselves by putting QR codes on the bags linking to video interviews with the producers talking about what makes their coffee special. They expanded into exporting green coffee and opened their first small café in a shipping container in a parking lot in Bogotá.
Fast forward to today. Azahar is roasting, retailing and exporting more than $10 million of coffee per year — nearly 3 million pounds, all traceable to individual farmers. The company has also expanded to Mexico, where it’s currently working with around 400 farmers.
Azahar now runs three cafés in Colombia, and it was through a loyal customer that they were connected to USAID.
Funding for growth
“The first thing I knew about Azahar was that their coffee was just amazing,” says Jimena Quiroz. “I used to go to their cafés when I lived in Bogotá and was always struck by the fact that they showcase the name of the producer, the type of coffee and quality, the benchmark coffee price, and the premium price they paid for the coffee.”
Photo from Azahar’s café in Bogotá. Credit: Jimena Quiroz, MCE Social Capital
Besides being a coffee lover, Jimena is a Senior Investment Manager at MCE Social Capital, a nonprofit impact investing firm. “It was a one-of-a-kind moment in my career,” she says, “because I approached them about a potential investment, instead of the other way around.”
MCE Social Capital, which was founded in 2006 and known for its flagship guarantee model, had recently launched its first investment fund focused on sustainable agriculture. The MCE Empowering Sustainable Agriculture (MESA) Fund seeks to scale economic opportunities within local communities, enhance the climate resilience of smallholder farmers, and empower women throughout the agricultural sector in emerging markets.
Catalytic funding from USAID through the INVEST initiative was critical in supporting the design and structuring of the fund, and as of October 2023, MCE had raised $41.6 million from a diverse roster of investors including the U.S. International Development Finance Corporation (DFC), FMO: Dutch Entrepreneurial Development Bank, the Visa Foundation, and Ceniarth.
Azahar was a natural fit for the MESA Fund and ultimately became one of its first investees. Colombia is one of the priority countries identified for the fund, and Azahar represents the first Colombian small and medium enterprise (SME) to join MCE’s portfolio. In their first meetings discussing Azahar, Jimena and her team saw that the company’s numbers were good and that it was poised for growth. “They had been funding their operations with their own resources and were profitable enough, but they needed funding to get to the next stage.” With their $1 million investment over two years, MCE became Azahar’s first international lender.
The impact
“Azahar fits into the MESA Fund model in every possible way,” says Jimena. “It has really incorporated impact into every stage of their value chain, socially and environmentally.”
First, Azahar is improving farmer livelihoods by providing above-market prices. Since its start, Azahar has paid premiums of 1.5 to two times market price, and frequently considerably more. It’s currently purchasing coffee from almost 5,000 smallholder farmers in Colombia, many of whom live in post-conflict regions of the country. When surveyed, 80% percent of farmers working with Azahar reported increased quality of life thanks to the company’s fair pricing.
“The impact of price on farmer’s income is immediate,” Tyler notes. So much so, that Azahar has also developed the Sustainable Coffee Buyers Guide, a tool which provides information to coffee buyers about the prices required by farmers to achieve different levels of income — poverty line price, legal price to achieve minimum wage, living income price, all the way up to a “prosperous” price. Azahar hopes that the guide can act as a jumping off point to increasing consumers’ knowledge, and is even encouraging its competitors to use the guide, with the goal to move the whole industry forward.
Luis Alberto Jojoa of Perla del Otún farm. Photo: Azahar Coffee Company
Azahar’s business model is also creating jobs and helping formalize the coffee sector. Informality is pervasive and can mean payments below minimum wage and lack of proper job protections. Azahar created the nonprofit Manos Al Grano in 2021 to help improve stability and predictability for both farm owners and pickers. It hires pickers, providing training and full-time employment, and can then provide more specialized labor to farmers, who don’t have to scramble for available workers. The farmers can also charge more for their coffee, since they are employing more skilled pickers, who can identify the best beans. In the last three years, Manos Al Grano has trained 35 pickers working at 20 farms, and hopes to triple the program in the next two years.
On the environmental side, Azahar is encouraging sustainable agricultural practices. Azahar has agronomists that provide technical assistance to the farmers, helping them fight pests and diseases, rely less on chemical fertilizers, and improve soil quality. Azahar is a member of the Rainforest Alliance, with an environmental policy that commits to promoting sustainable practices and supporting conservation.
The way Tyler sees it, the social and the environmental impact go hand in hand. “If you don’t have economic incentives, you can’t expect farmers to be good custodians of the land.” By increasing farmer incomes, Azahar is promoting a business model that’s friendlier to the forest, with much of the coffee planted in the shade of canopies, especially in places such as Oaxaca. This allows growers to prioritize quality over quantity, which in turn allows them to charge more for their coffee.
Looking forward
With a growing footprint and a commitment to advocacy in the coffee industry, the future is bright for Azahar. “The investment [from MCE] has allowed us to pursue more business opportunities than if we were constrained by the working capital we had,” Tyler says. “Plus, MCE was willing to ask us serious questions about scaling impact.” Tyler hopes to expand from Colombia and Mexico into more Latin American countries and continue getting other coffee buyers on board with traceability, transparency, and fair pricing to benefit farmers and pickers at the heart of the industry.
As for the MESA Fund, it’s planning on making 35 more investments over the life of the fund — all in impact-forward agribusinesses. According to MCE, the catalytic funding from USAID was timely and served as a stamp of approval in the early design stage of the fund, which helped them attract more investors. The non-financial support, from making introductions and providing expert guidance, was also critical.
By working through impact fund managers like MCE, USAID is able to reach deep into the countries where it works, supporting the entrepreneurs who strengthen their local communities.
Learn more about Azahar, the MESA Fund, and USAID’s work supporting transaction advisory services to mobilize investment where it can do the most good.
