Improving Access to Finance for the Dairy Value Chain in Nicaragua

Nicaragua, like many emerging markets, has an economy that relies heavily on agriculture. While Nicaragua’s chief agricultural exports are coffee and cocoa, the dairy industry is a large and important component of local agribusiness.

The Inter-American Development Bank (IDB) asked the Capstone team to identify bottlenecks in the dairy supply chain in Nicaragua, specifically within the raw milk production and collection process.  The goal is to facilitate access to credit for the dairy sector, which recently faced an international price collapse and is dramatically under-banked. Further, servicing of loans is difficult and can be expensive, especially for smaller loan sizes.

In order to facilitate this study, the Capstone team conducted qualitative interviews with key stakeholders in the value chain, in-depth interviews with industry experts, and requested data on the businesses that operate in the Nicaraguan dairy space, focusing on cooperative Nicacentro and individual producers.  The team analyzed international and domestic dairy markets, day to day operating procedures, and Nicaraguan laws regarding health and sanitation, banking, and property.  Since food safety regulations can act as a non-tariff barrier to trade, the team also considered the health and sanitation regulations of countries that may import from Nicaragua dairy sector.

The team also constructed basic models of financing, and considered the impact of revenue improvement on a farmer’s ability to pay to finance those improvements. Finally, the team looked at the business conditions of several financial actors within Nicaragua, namely a government-run bank with a   development mission, and two independently operating microfinance organizations.