Our first full week in El Salvador has concluded, and we have already interviewed 10 large organizations in the country’s coffee industry. To better understand the complexities associated with the sector, we met with the following types of organizations:

  1. Coffee Associations/Organizations (public and private)
  2. Banks
  3. Farmers/Cooperatives
  4. Exporters
  5. NGOs

It’s becoming apparent that most parties agree on the issues facing the country. While a general passion for making improvements exists, there is little consensus as to which corrective actions should be taken to resolve the crisis.

After being in Central America for two weeks, I’ve started to realize that an effective strategy will need to be based on a foundation of both quantitative and qualitative analysis. Coming from a statistics related role at PIMCO, my initial thesis was that small farmers should diversify to other crops, such as cacao, to help mitigate volatility. From a quantitative perspective, diversification would help mitigate unsystematic risk, and could reduce the impact of unexpected leaf-rust outbreaks.

When analyzing the same strategy from a qualitative lens, other factors such as family tradition and market perception might suggest a different outcome. Although diversification makes sense in theory, farmers may be hesitant switch to cacao production if their family has farmed coffee for generations. Diversifying away from coffee may also cause El Salvador to lose its reputation as a high quality coffee-producing region, and would reduce the quality premium currently received by many farmers.

From the food to the volcanoes to the coffee farms (picture below), to the overwhelming kindness of the locals, I couldn’t be happier to be living in El Salvador. That being said, we have our work cut out for us over the coming weeks; the problems facing the coffee industry are extremely complicated, and will require a comprehensive solution that includes both qualitative and statistical analysis.

The Volunteer

Scott Argyres

Associate, FBG-Fund Statistics

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