Financing Small-Scale Agriculture in Honduras: A Case Study

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Introduction

In November 2020, two back-to-back storms tore through Honduras. Hurricanes Eta and Iota fell upon an economy already decimated by a more than 10 percent contraction in GDP caused by the Covid-19 pandemic, affecting millions and displacing more than 400,000. Among those most heavily impacted by the devastation were Honduras’ roughly 2 million smallholder farmers, who saw their crops destroyed and fields inundated with heavy rains. Indeed, the storms impacted nearly three-quarters of all crops in Honduras, leaving many farmers with a choice between overcrowded and strained emergency services and leaving their homes in the hopes of finding employment and security elsewhere.

The tragedy that followed in the wake of Hurricanes Eta and Iota was not a new phenomenon in Honduras, where sudden disruptions from irregular rainfall, fluctuations in temperature, and pests and diseases have all struck the agricultural sector in recent years. Today, global supply chain snarls, inflation, and rising prices for energy and fertilizer have touched off a massive agricultural crisis around the world, including in Honduras where food insecurity was already on the rise. These shocks fall disproportionately on small-scale farmers, who have limited ability to absorb the loss of income from reduced harvests. Year in and year out, thousands of Honduran farmers find themselves confronting the same daunting question of how to persist in the face of unexpected—and often unmitigable—disruptions to their livelihoods.

Year in and year out, thousands of Honduran farmers find themselves confronting the same daunting question of how to persist in the face of unexpected—and often unmitigable—disruptions to their livelihoods.

Improving access to finance for these farmers can be a powerful tool for answering this question. Financing lets farmers even out their consumption—borrowing to get them through difficult years and repaying during prosperous ones. It also allows for investments in expensive, yet critical inputs that make farms more productive and resilient to sudden disruptions. Fertilizers, pesticides, climate-resilient seeds, and updated transportation and storage facilities can all make a significant difference to a small-scale farmer. For countries like Honduras, where large segments of the population draw their livelihoods from agriculture, improvements in access to financing are closely tied to the overall economic health of the country, and vice versa.

Indeed, agriculture is the top source of income for Hondurans living below the poverty line. While providing employment opportunities, it also accounts for 10 percent of the country’s GDP. Nearly 30 percent of Hondurans work in the agricultural sector, with approximately 70 percent of these being smallholders who primarily farm low-profit crops such as bananas, plantains, rice, maize, and beans. Most of the country’s agricultural land is unconcentrated and in the hands of small landowners who utilize less than one hectare. In a country where the poverty rate has reached as high as 73.6 percent, with 53.7 percent of households in extreme poverty, bolstering the agricultural sector should be seen as a top priority for development efforts.

At a macroeconomic level, Honduras benefits from close trade integration with the United States under the Central America Free Trade Agreement (CAFTA-DR), while small-scale farmers in particular have been the recipients of substantial development assistance. Nevertheless, a volatile economy and a vulnerability to climate shocks present continued obstacles that fall heaviest on the country’s small-scale farmers. In spite of the effects of the Covid-19 pandemic and natural disasters, the country is taking important steps toward improving its business investment climate. These initiatives also incorporate the necessary assistance of international finance and development institutions, particularly from the United States.

Despite these healthy economic initiatives and a close trade relationship with the United States, the Honduran economy has experienced significant setbacks, especially due to Covid-19, and many issues continue to persist. During the pandemic, the Honduran economy contracted more heavily than all of its Central American neighbors. Public debt in Honduras has also been trending upward and reached all-time highs during the pandemic.

Compounding these challenges are growing environmental disruptions. On a global scale, but especially in Honduras, agriculture is highly dependent upon the climate. Honduras is one of the countries most vulnerable to climate disruption in the hemisphere, due to its high exposure to climate-related hazards that devastate crops and critical infrastructure. Drought, climate change, and plummeting prices have left small-scale agricultural workers in Honduras with few options but to migrate or else engage in illicit economies to subsist.

Between 1993 and 2012, Honduras experienced more damage caused by extreme weather events than any other country on Earth. Extreme rainfall, atypical droughts, variation in the dates of rainfall, loss of fertility, erosion, and decrease in arable land are reoccurring agricultural issues—and have been for decades. Honduras’s production of corn, coffee, and beans has suffered the effects of climate change the most, causing stress, low crop yields, decreased quality of crops, and crop losses ranging from partial to total. For maize alone, it is estimated that production losses could amount to a value of US$40 million. The cultivation of basic grains is also hindered by variation in the rainy season, increased invasive pests, and crop diseases that have spread due to climate change.

This paper places Honduras in the global and regional context for small-scale farming, illuminating all of the headwinds and challenges. The research is based on fieldwork conducted by CSIS employees in the Northern Triangle between late September and October 2022. The paper concludes by offering several policy recommendations to address global, regional, and local challenges for small shareholder farmers.

Small-Scale Agriculture: The Global Context

Small-scale agriculture is a key link in the global food supply chain. While there is significant variation in what may be considered a smallholder farm, the World Bank defines these as typically crop or livestock producers cultivating two hectares of land or fewer. Under this definition, out of an estimated 570 million farms worldwide, about 84 percent count as smallholders. These farms produce roughly a third of all crops globally and employ the bulk of the estimated 1 billion people worldwide who work in the agricultural sector. The contribution of small farmers to the food supply in their respective regions varies widely. In Asia and sub-Saharan Africa, small-scale farmers are estimated to provide up to 80 percent of the food produced, whereas in Brazil or Nigeria—countries with a greater presence of agribusiness—the number is in the low single digits. Large disruptions to these small farms can prove devastating, particularly in regions that highly depend on them for their food supply. Small-scale farmers in developing countries are disproportionately experiencing the effects of climate change and variability. These effects are compounded by the high risk of external shocks, as recently observed with the pandemic.

Factors such as climate change, population growth, the pandemic, and conflicts threaten food security around the world. These new pressures on policymakers have spurred the development of a more sustainable and resilient global agribusiness industry. Estimates suggest that global food demand will have increased by 70 percent by 2050, which will require at least $80 billion in annual investment in the value chain. According to the World Bank, the private sector will play a key role, as limited public resources cannot keep pace with large-scale mechanization, climate-smart technologies, processing, and agri-food logistics. Smaller investments are also needed for small and medium enterprises to increase their productivity while reducing environmental impact.

Most commercial financial systems pay comparatively little attention to the agricultural sector. Banks and other institutional investors typically have limited investment portfolios in the agriculture space, with even fewer specialists equipped to address the challenges associated with financing small-scale farmers. According to the World Bank’s Global Findex Database, for instance, less than 5 percent of rural adults in developing countries have ever secured a loan from a formal financial institution. Globally, the agricultural and household financial needs of small-scale farmers are estimated at $240 billion per year, while agribusiness require additional finances to grow their businesses. Climate financing for small-scale agriculture also reached $10 billion per year between 2017 and 2018. However, only 1.7 percent of this goes to small-scale farmers in developing countries, despite their disproportionate vulnerability to climate change.

Other important challenges for financing small-scale agriculture include high transaction costs in dealing with many small farmers along agriculture value chains, limited effective demand for finance, and the lack of expertise at financial institutions in managing agricultural loan portfolios. Many countries have also put in place inadequate or ineffective policies and instruments which often limit opportunities to mobilize private capital for the sector.

Taken together, these obstacles to financial access have been observed by some analysts to create a “missing middle.” This term refers to the fact that the financial needs of many small-scale farmers are beyond that which can be comfortably supplied by microfinance institutions. Yet they also lack the collateral—and are often too remote and risky—to be considered optimal for traditional commercial loans. In monetary terms, the missing middle is defined by the World Bank as the gap between loan amounts from $5,000 to $500,000, a range that captures practically all smallholder farmers. Further compounding this gap is the diversity of needs within the missing middle, as the exact types of financing needed vary widely between farmers depending on the type of agriculture they engage in, existing infrastructure, local market conditions, and business models.

In response to this missing middle and the broader challenges of small-scale agriculture financing, aid organizations, financial institutions, and national governments have experimented with a range of potential solutions. Countries around the world have established agricultural development banks, aimed at specifically catering to the needs of farmers, including smallholders. Other initiatives include leveraging digital technologies to give remote farmers access to banks and other financial institutions. Finally, impact investing has risen as an approach to not only increase the competitiveness of small-scale agriculture on the market but also support social and environmental goals.

While these global trends broadly characterize the state of small-scale agriculture financing, the sheer diversity of this sector means that both obstacles and potential solutions vary dramatically across and even within countries. There is no panacea, and tools to increase access to finance must be tailored to country- and regional-level factors. This can clearly be seen in the case of Honduras.

The State of Small-Scale Agriculture and Finance in Honduras

Nestled in the mountains of the La Paz department of Honduras, picturesque mountainside views continually vied for attention with the myriad facilities for sorting, drying, and storing coffee beans located below. The coffee cooperative was inactive during an in-person visit, but bore all the marks of a growing operation, with a large edifice of corrugated metal and concrete under construction toward the far end of the field in which it was located. Over the course of the next several hours, the authors learned about the cooperative’s history, governing structure, facilities, and major challenges—a capstone to three days of semi-structured participant interviews in Honduras with members of agricultural associations, commercial banks, nonprofits, government institutions, and representatives from the U.S. Agency for International Development. The interviews revealed some common threads with the narrative regarding the nature of financing for small-scale agriculture, explained in the prior section, while also illuminating dynamics unique to Honduras and the current political moment in particular. The interviews shed light on three broad elements shaping the Honduran small-scale agricultural sector: high levels of available capital but picayune access to financing; exposure to unmitigable risks, especially in terms of climate and environmental hazards; and a significant role for cooperatives and associations to play.

Availability and Accessibility

Honduran commercial banks, as noted by virtually every interviewee, are not strapped for cash. Indeed, the country benefits from both a well-established domestic banking sector—incarnated most notably in the form of the two largest banks, Banco Atlántida and Banco FICOHSA—and access to international financial institutions, which has increased of late following the election of Xiomara Castro. The Central American Bank for Economic Integration (CABEI) also heads its operations from Tegucigalpa, helping pump millions of dollars in credit into the Honduran economy to speed the country’s post-pandemic recovery.

However, the agricultural sector, especially at the small and mid-sized level, reveals a crack in this overall positive financial landscape. Rare indeed were success stories of individual farmers who traveled from their land to a nearby brick-and-mortar bank, applied for a loan, and received the funding in a timely manner to finance their operations for the coming year. Far more common were stories of invisible barriers to access, a lack of education or understanding from both sides, unrealistic demands for collateral, and astronomical interest rates. Even when farmers—or more often collectives of farmers—were able to meet these requirements, the chances of acquiring a loan remained low. Indeed, as one agricultural association described, the lack of access to formal banking often forces small farmers toward financial instruments and informal lenders who extract even higher interest rates than formal banks. However, the Honduran banking sector also suffers a paucity of experts focused specifically on agriculture. The majority of lending by firms like Atlántida and FICOHSA goes to the country’s maquilas (i.e., the manufacturing sector), which dominate the country’s economy. As a result, analysts at these banks are trained to assess risk and set terms for large, hierarchical businesses, with which they often have long-standing relationships. The tools a bank might use to evaluate the suitability of one such firm for a loan are therefore vastly different from the kinds of metrics that might influence lending to a small farmer or cooperative. In the face of unfamiliarity, the response of commercial banks has been, predictably, to disengage with the small-scale agricultural sector.

Rare indeed were success stories of individual farmers who traveled from their land to a nearby brick-and-mortar bank, applied for a loan, and received the funding in a timely manner to finance their operations for the coming year.

Perhaps the only sector lacking requisite funds was the very state institution designed with small-scale agriculture in mind. Banadesa, the Honduran government bank charged with promoting agriculture, has long suffered from poor monitoring and financial discipline, leading to a low recovery of assets. Combined with a lack of resources from the government, Banadesa has only recently made a meaningful effort to reassert itself in the agricultural sector following a lengthy period of recuperation and a new influx of capital to respond to global food shortages.

Access to financing is not merely a challenge for banks to solve; it manifests among farmers as well, who must surmount non-trivial barriers merely to get into a position to apply for a loan. Basic accounting skills to tally up production, expenses, and revenue over time are often unevenly distributed among farmers, but they are critical in the ability of prospective loan applicants to successfully demonstrate their ability to repay. More fundamentally, interviewees regularly cited a cultural aversion to debt that held many small farmers back from accepting financing when offered. Taken in sum, perhaps the core challenge facing small-scale agriculture financing in Honduras is not a lack of resources, but rather a serious lack of the right kinds of financial instruments for connecting farmers to these resources.

Risks and Mitigation

Agriculture in Honduras, especially at the small scale, grapples with vulnerability to significant shocks that can disrupt harvests, earnings, and entire livelihoods over short time horizons. This challenge is not unique to Honduras; indeed, small-scale farmers the world over face a perennial risk from failed harvests and possess few tools to recover quickly by themselves. However, the authors’ understanding of the unique contours of risk in Honduras sharpened over the course of the fieldwork, revealing new directions and considerations. First, it is important to understand that these risks are distributed along a spectrum in terms of intensity. At the far end of this spectrum is the potential for entire harvests to be lost to climate, disease, or any number of large-scale and difficult-to-prevent disasters. For instance, in the aftermath of Hurricanes Eta and Iota, the Honduran government estimated that 8,200 hectares of maize and 12,850 hectares of beans were lost to extreme weather. Diseases such as coffee leaf rust can also trigger significant disruptions for growers of one of Honduras’ most significant cash crops, though this infection itself varies in effect as the fungus that causes the damage has difficulty reproducing at higher altitudes, thereby having different impacts upon farmers in the same region but at different elevations.

However, a risk factor need not completely devastate a harvest in order to have an impact on small-scale farmers. Fluctuations in demand for particular goods can in turn impact the price farmers sell at, especially when many small operations rely on middlemen to move their produce to market. Relatedly, inconsistencies between two separate producers limit the ability of smallholders to successfully bargain collectively with large buyers. Supermarkets and exporters represent lucrative markets willing and able to pay higher rates than traditional middlemen, but they demand large quantities of agricultural products that match a particular set of specifications. Without strong institutions to facilitate knowledge transfer and awareness of these standards between different farmers, the ability of small-scale operations to sell to larger distributors remains limited, and it represents a risky prospect for all involved.

Finally, migration intersects virtually every stage of risk environment for small-scale agriculture. Beginning at the threshold conditions of acquiring financing, banks and even development actors and nonprofits are often reluctant to extend cash, as there is a concern that these funds could be readily used by the recipients to pay trafficking organizations to get them into the United States. Even advances in agricultural productivity for small-scale farmers may not suffice to address the root causes of irregular migration; several interviewees reported that even relatively well-off producers frequently elected to take their chances in migrating rather than remain in Honduras. Thus, there appears a risk that some individuals may earnestly seek to increase the productivity and profitability of their agricultural activities only to the point that it allows them to make the necessary payments to travel northward. The criminal networks that exploit irregular migration also pose challenges for those individuals who may have no intention of migrating whatsoever, as traffickers have made agriculture a key element in their money-laundering operations. As relayed to the authors, in rural communities, human smugglers will offer to buy from small farmers at below-market rates, offering immediate cash in exchange for cheap produce and other goods which they then sell to markets and middlemen, thereby creating the licit transaction needed to launder trafficking payments. This in turn complicates efforts at introducing small farmers to official markets and the concomitant demand fluctuations and standards requirements expected from official buyers.

Accordingly, the entrance of traffickers into small-scale agriculture not only fuels the ongoing crisis of irregular migration from Honduras but also fosters networks of dependency among small farmers, limiting their ability to capitalize on new opportunities from cooperations and innovative financial tools.

Cooperatives and Associations

Returning briefly to the mountains of La Paz, the cooperative structure is notable as one of the most successful mechanisms for supporting smallholder farmers. Contrary to depictions of small-scale farming as an individualistic and isolated affair, cooperatives like the one visited by the authors are often a necessary measure to organize production, share best practices, ensure meaningful market access, and negotiate as a united front. The nature of this cooperation is highly variable, with operations enjoying different levels of success. In particular when it comes to products that require some level of processing and standardization, such as coffee, a unified governance structure is essential for small producers to sell to a larger market. Providing a central organization also facilitates exchange with financial institutions and development partners, who can work through a single body rather than coordinating their programming on a case-by-case basis with dozens or even hundreds of individual farming operations. In turn, membership in a cooperative provides incentives for farmers, who can defray costs of processing and storage facilities, as well as transportation, across several individuals.

Cooperatives also provide less-tangible benefits, such as facilitating horizontal information exchange between members and serving as a marker of credibility. The benefits of the former should not be understated: as both recipients and providers of technical assistance testified, being able to consult with other farmers about relative soil quality, environmental conditions, fertilizer and input prices, and experiences working with financial institutions is invaluable in raising the overall productivity of all cooperative members. Building and maintaining effective cooperatives and associations was also at the core of some of the most innovative approaches to agribusiness and financing that were studied in Honduras.

For instance, one initiative coordinated by the nonprofit Foundation for Rural Business Development (FUNDER) seeks to bring together small producers, markets, and traditional banks. Known as the De Mi Tierra program, the initiative identified specific crops and worked with relevant associations and cooperatives across eight departments in Honduras to connect these groups with technical assistance and financing. Ultimately, the crops, beginning with year-round staples such as potatoes and beans, were sold directly to the La Colonia chain of supermarkets, cutting out middlemen and providing small farmers with access to a much larger market than they could otherwise have engaged. From the buyer’s end, the project delivered substantial benefits, cementing domestic supply chains that helped reduce the need for importing high-demand agricultural products. While this project had drawn down the last of its initial funding at the time of the field visit, De Mi Tierra and other initiatives like it not only illustrate the power of cooperatives and associations when aligned around a specific type of agricultural product but also illustrate the need for an approach to financing in Honduras that conceptualizes the full agricultural value chain from production to distribution.

Regional Ties: Guatemala and El Salvador in Small-Scale Agriculture

The U.S. market share in the Central America and Caribbean region averages more than 40 percent, which is the highest share outside of Canada and Mexico. The implementation of CAFTA-DR brought the economies of the United States and Central America even closer together. Combined, Honduras, Guatemala, Nicaragua, El Salvador, and Costa Rica represent the third-largest source of coffee beans globally, illustrating the importance of the agriculture industry to this region. At the same time, the CAFTA-DR countries rank as the seventh-largest agricultural market for U.S. exports, worth $4.4 billion.

In Guatemala, the United States is the largest supplier of agricultural, food, fishery, and forestry products. U.S. exports to Guatemala totaled $1.6 billion in 2021; Guatemala’s U.S. imports of consumer-oriented products, such as meats, prepared foods, and condiments totaled $639.9 million. The three most dynamic sectors of U.S. imports in Guatemala are processed meats, bakery products, and dairy products.

In El Salvador, U.S. agricultural exports contributed approximately 20 percent of the total consumer-oriented products market, totaling $189.4 million in 2020. Pork, poultry meats, and tree nuts reached record imports in 2020. Some food products are overwhelmingly imported from the United States; for example, nearly all wheat processed by Salvadoran mills comes from U.S. producers. The demand for rice, corn, and soybeans must also be met by imports from the United States, with U.S. rice and corn constituting over 90 percent of local demand. The highly interconnected economies of the Northern Triangle and the United States, particularly through trade agreements, provide an important framework for agricultural financing in the region.

Guatemala

Farmland in Guatemala, unlike in Honduras, is largely concentrated and owned by farmers who possess more than a hectare of land. The average size of small farms, however, is around 1.2 hectares—still well under the World Bank’s cutoff for smallholder status. Approximately 49 percent of Guatemala’s population lives in a rural area. Agriculture constitutes over 30 percent of total employment and approximately 10 percent of Guatemala’s GDP. The predominance of agriculture in Guatemala, relative to its entire economy, correlates with the many similar challenges and hardships the populace of the Northern Triangle faces, such as poverty, food insecurity, and malnutrition. Following regional trends, Guatemala continues to have high levels of migration to the United States, motivated primarily by a lack of economic opportunities. Around 70 percent of the nation’s poor live in rural areas, where agriculture remains the principal source of food and income. The severity of these challenges varies depending on the region and becomes compounded by other issues, such as malnutrition. The Indigenous population in particular suffers from poverty and malnutrition, with only 19 percent of this population being food secure. Globally, Guatemala also has the fourth-highest level of children suffering from undernutrition. The reliance of poor Guatemalans on agriculture cannot be understated, which makes agriculture a clear choice for development opportunities.

Despite these challenges, Guatemala appears to have a longer and stronger history of agricultural development projects and financing. Since 1986, the International Fund for Agricultural Development (IFAD) has invested a total of $114.7 billion in eight different agricultural development programs and projects, benefiting more than 122,316 households. The World Food Programme also developed the “Purchase for Progress” project, which aimed to instill an entrepreneurial attitude in the country as well as to increase credit and loan access from a local lending agency. There also exist legal frameworks offering incentives and spurring international demand for agricultural products. However, Guatemala seems to be more characterized by the presence of oligopolies and a lack of free competition than Honduras. This results in small-scale farmers suffering losses and export companies obtaining a disproportionate amount of the value. Larger historical structural issues also hamper development efforts. Traditional campesino systems continue to dominate large areas of Guatemala, which reflects an unequal society still starkly stratified by ethnicity, land ownership, and education, among other categories. These socioeconomic structural challenges must be addressed if development efforts are to be successful.

El Salvador

Although much of El Salvador’s agriculture sector is similar to that of Honduras and Guatemala, it stands out for its commitment to and emphasis on family-based agriculture. About 33.3 percent of El Salvador’s population lives in a rural area. The majority of the country’s farms are owned by families who operate on less than 2.1 hectares of land: approximately 325,000 farmers work on land smaller than 2.1 hectares, 65,000 utilize more than 2.1 hectares, and 5,000 are large-scale producers. Farms that operate on more than 2.1 hectares sell most of the goods they produce, and the top 5,000 farmers are the more modernized, commercial producers. While owning considerably less land than the commercially oriented farms, the 325,000 small farms not only consume nearly all of what they produce but also produce a large amount of food consumed domestically. This has resulted in family farming belonging to a subsector of subsistence in El Salvador, all while playing a critical part in food security. Despite the large amount of food produced and consumed domestically, nearly 70 percent of food that all Salvadoran families consume continues to be imported.

In order to support struggling small farmers and boost such a crucial component of food security in the country, the Salvadorian Ministry of Agriculture and Livestock created and implemented the Family Agriculture Plan (PAF) in 2010. The PAF is supported by the Inter-American Institute for Cooperation on Agriculture and the Food and Agriculture Organization. El Salvador has also been implementing policy and regulatory frameworks to encourage direct foreign investment and business development in the country, and it has a focus on developing human capital. Credit to the private sector is on the rise, growing by 6.4 percent in 2018. The future development of agricultural financing is of great concern to the government, which has identified and proposed initiatives to overcome present and future challenges. Significant national investments in infrastructure and programs aimed at eradicating hunger and malnutrition indicate a positive trend that has begun to alleviate some of the challenges facing El Salvador.

Whereas Honduras and Guatemala continue to struggle with poverty, El Salvador has uniquely made significant strides in successfully reducing it. The poverty rate declined from 39 percent in 2007 to 22.3 percent in 2019. Extreme poverty has also declined from 13 percent in 1995 to 1.5 percent in 2019. Nonetheless, it is important to note that a large proportion of small farmers still subsist in poverty. Small farmers must also endure environmental changes presented by climate change, which are creating significant agricultural risk in El Salvador. Large proportions of agricultural land are used inadequately and suffer from soil erosion. The loss of natural forest has caused landslides and fires, resulting in evacuations and migration. El Salvador presents a profile that is uniquely successful in some areas, particularly in alleviating poverty, that can serve as a model for other Central American countries. However, issues such as fiscal stability and violent crime illustrate some of the much-needed reforms that still need to take place, especially in the context of Bukele’s rise to power and the highly concerning democratic backsliding occurring in the country.

Policy Recommendations

Creating opportunities for small-scale farmers and improving access to finance intersect with several of the Biden administration’s core priorities in the Western Hemisphere. Increasing the prosperity of farmers strikes at the heart of the “root causes” strategy for curbing migration from the Northern Triangle countries. Meanwhile, ensuring that agricultural production moves forward in a sustainable and environmentally conscious manner will be key in order to advance climate goals in Honduras. Lastly, while the agricultural sector in Honduras faces entrenched challenges, there are strong foundations already in place to advance policy goals over the short, medium, and long term.

Increasing the prosperity of farmers strikes at the heart of the “root causes” strategy for curbing migration from the Northern Triangle countries.

  1. Build win-win exchanges between producers and buyers at scale. Any policy seeking to improve the lot of small agricultural producers would do well to examine how these individuals can fit into larger value chains. The De Mi Tierra program mentioned previously offers one example of how associations of small producers, if organized and provided with necessary technical support, can play a vital role in supplying major supermarkets. At the moment, however, efforts to construct such win-win exchanges in Honduras remain in their nascency and have not managed to turn a profit for the banks that offer financing to farmers in the program. The United States can encourage the continuation of these programs and help scale them up even more by involving multinational companies with a significant presence in Central America. For instance, Walmart has operations throughout Honduras and would likely stand to benefit substantially from being able to stock its shelves with potatoes, beans, bananas, and coffee produced in-country. Other companies involved in the Partnership for Central America with a focus on the agricultural and financial space, such as Cargill, Nespresso, and PepsiCo, can also play a role—by providing further technical support, connections to buyers, or even direct financing to small farmers.
  1. Support small-scale producers entering the export market. Beyond selling to Honduran supermarkets, connecting small-scale farmers to foreign markets harbors significant potential, although there are also undeniable risks. Producing crops for export entails adherence to specific and strict standards for quality control—and noncompliance may result in entire shipments being rejected at port. Nevertheless, Honduran producers have enjoyed modest success in partnerships focused on coffee exports to the United States and Japan. Expanding these to include other crops where Honduras possesses a competitive advantage could deliver major benefits to both Honduran producers and U.S. consumers. Agencies like USAID could spearhead technical assistance programs focused on navigating customs and export standards, which could equip small producers to enter this market. Meanwhile, the Biden administration could work to create an expedited review process for Central American agricultural goods under the auspices of CAFTA-DR and the Americas Partnership for Economic Prosperity (APEP). Such an initiative would likely require a longer time horizon and could suffer setbacks as different cooperatives and associations acquire the skills to enter the export market at variable rates, but it would represent a major step forward in terms of the options available to small-scale agriculture in Honduras if properly implemented.
  1. Facilitate exchanges between producers and financial institutions. Breaking down misperceptions is the first step toward increasing smallholders’ access to the financial system. USAID can serve as a convening body to bring banks and agricultural associations together and discuss options for improving the accessibility of finance. In doing so, the United States can build on previous work by other organizations—such as the Japan International Cooperation Agency, which in the past has brought high-level financial sector leaders to rural communities to explain their processes for evaluating risk and processing loans. The United States should endeavor to forge these connections at every level of the process, including with local bank branches that likely serve as the first point of contact for farmers. Following initial consultations, other actors can be introduced, such as NGOs working in the agricultural space, buyers and markets, and the Honduran government. Providing a centralized method for convening the entire agricultural financing ecosystem could serve as a powerful forum for sharing technical assistance, identifying new strategies, and developing the important relationships needed to leverage the Honduran private sector in support of farmers.

Ryan C. Berg is director of the Americas Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Henry Ziemer is a program coordinator and research assistant with the CSIS Americas Program. Michael Estopinan is an intern with the CSIS Americas Program.

This report is made possible thanks to generous support from Heifer International.

This report is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

© 2022 by the Center for Strategic and International Studies. All rights reserved.

Michael Estopinan

Intern, Americas Program