Coffee Growers Organize to “Survive” the Bankruptcy of CISA

At least 60 Nicaraguan coffee growers —mostly from Matagalpa and Jinotega— who had operations with the recently closed CISA Exportadora, were to meet this Friday, December 8, 2023. The objective was to form a committee that will allow them to influence the bankruptcy process of Mercon Coffee Group, which threatens their finances, and those of thousands of workers who depend on this activity. Nicaragua received USD $711 million from coffee exports in 2022.

The crisis that affects a good part of the country’s coffee producers became evident on December 1, when CISA informed them that it would stop receiving their beans, awakening a fear that materialized in the following hours and days, when it was learned that Mercon, the global firm that owns CISA Exportadora, had gone bankrupt.

On December 6, a letter signed by the CEO of Mercon Coffee Group, Oscar Sevilla, confirmed that after evaluation of all options, “the business no longer has the necessary financing to continue its operations and the Board decided to file for Chapter 11 of the United States Bankruptcy Code, as the best alternative to protect the company’s assets.”

The 60 producers seek to organize themselves to “be in any type of negotiation, so that they do nothing behind our backs. This is how we are going to let the government and the banks involved know, because here they usually make deals without taking us into account. In the end they only tell us ‘we decided on that’, and we are all in this boat,” a coffee grower told CONFIDENCIAL. He did not rule out meeting with government officials, as well as with bank representatives.

A total of 8.3% of the debts that led to Mercon’s bankruptcy are contracted with Nicaraguan banks: $19.5 million USD with Lafise; 7 million with the Production Development Bank; 2.0 million with the BDF, and 1.5 million with the BAC Nicaragua, in addition to 3.0 million with BAC Panama; and 3.5 million with the International Bank of Costa Rica (BICSA), amounts that pale when compared to the 202.5 million it owes to Rabobank, or the 25 million it must pay to the Dutch FMO.

Other companies refuse to buy coffee from the affected growers

The closure of CISA Exportadora, also implied the cessation of operations of Mercapital, the arm of the business group dedicated to financing producers. This left them without the necessary capital to cover the expenses of the harvest, when thousands of people come to work from different parts of the country to the coffee-growing areas.

The producer mentioned above, as well as numerous other sources in the coffee sector with whom we spoke with in the last three days, have indicated with concern that Mercon’s bankruptcy occurs at a time when the producers are in the middle of the harvest and the coffee is ripening. They urgently need money to pay its workers.

In this context, many companies that competed with CISA, like Atlantic and OLAM the two largest, as well as other smaller ones, refuse to receive coffee from producers who were CISA clients, arguing that this coffee belongs to the closed company, which had already paid for that product.

“Who is protecting us right now?” asks the coffee grower. He points out that producers have a liquidity problem, so many may try to sell part of their coffee (for a lower price) in local markets to be able to meet the payroll and continue the harvest.

“I see what these other companies are doing: they leave all that coffee without receiving it and then buy it cheap when the producers take it to the local market. In fact, they have already reduced the price at which they buy a quintal by 500 cordobas (around US $14),” he denounced.

Although he recognizes that they have a legal commitment with CISA, this producer responds that the bankrupt company “is seriously affecting us, because it is breaching the contract by not receiving our coffee and by not making the already agreed upon loan disbursements. Here everything is done to protect to the big guys.”

When your creditors run out of patience

The bankruptcy of Mercon Coffee Group is explained by the existence of a debt that exceeds USD 363.3 million, after receiving a renewable line of credit for 450 million dollars in 2019, plus another 325 million that was approved on June 30 by Rabobank, based in the Netherlands. This capital injection was insufficient to resolve the financial situation of the company, which declared bankruptcy at the beginning of December.

The letter signed by CEO Sevilla explains that “in the last three years, the logistical disruptions derived from the pandemic, added to the effects of frost and drought in Brazil, the prolonged delay of the market, the sustained fluctuation of prices and rapid increases in interest rates combined to form an exceptionally challenging operating environment for Mercon.”

He adds that, despite this series of “unfortunate triggering events,” the company’s senior management implemented all kinds of solutions over the last few months seeking to sustain the operation of the business. Proof of this is the capitalization that occurred in June, as well as the change in the company’s ownership structure, which was insufficient to change the destiny of the conglomerate that was born in Nicaragua and came to have a presence on three continents.

“Unfortunately, macroeconomic factors working against Mercon have persisted for longer than expected and lenders have chosen not to extend credit agreements, resulting in extremely tight working capital conditions,” Sevilla added.

In addition to what the BDF and BAC banks may be doing to recover their money, a professional linked to agro-export activity said he was aware that “Lafise would be executing its guarantees, without it being clear what that means beyond keeping the facilities. I don’t know if they would finance the operation to recover their debt, although I don’t think that can be automatic. They may possibly require the Superintendency of Banks to relax some provisions.”

Until Thursday night, the websites of the Nicaraguan banks, Lafise, BDF and BAC did not make any reference to the situation posed by the bankruptcy of CISA Exportadora.

This article was published in Spanish in Confidencial and translated by Havana Times. To get the most relevant news from our English coverage delivered straight to your inbox, subscribe to The Dispatch.