San Pablo Güilá, Oaxaca is one of the poorest towns in one of the poorest states in Mexico. Even though few things grow in this arid region, most of its predominantly indigenous population works in agriculture.
Given the scarcity of economic opportunities, many emigrate to the United States. According to the latest census, in the municipality of Santiago Matatlán - where San Pablo Güilá is located - 17% of households reported having at least one family member on the other side of the border. One of those migrants was José Melchor Pérez. “I spent three years in different parts of the United States. I had to work in the fields and there I learned about drip irrigation,” he says.
In 2007 he decided to return to Mexico and bring the new farming techniques he had learned in the United States to create economic opportunities in his town. With the money he saved, he built his first 1,000 square meter greenhouse with drip irrigation, where he started to grow tomatoes. He called his organization DAAN LLIA, which in Zapotec means "Ceremonial Hill", in honor of the name of the place where the greenhouse was located.
Cultivating an arid area posed several challenges. There were few trees and little water around the greenhouse, so the quality of the soil was poor and prone to erosion. Together with his family, José Melchor carried out a series of reforestation and water collection activities to revitalize his land and to ensure the growth of his organization.
His business began to flourish, and after a few years he turned to a government agency in search of resources to build new greenhouses. He got in touch with the Institutional Trust for Agriculture (FIRA), whose mandate is to support small farmers. Through its partner FINDECA, a private financial institution, a series of credits were approved to expand his project.
Since then, José Melchor’s business has grown rapidly. In the 12 years since he started his project, it has expanded from a single greenhouse to a 70-hectare farm, all grown with drip irrigation. On each hectare, the organization employs 12 people, generating approximately 800 direct jobs and another 300 indirect jobs. Over 70% of its workers are women. Last year they sold 3,000 tons of tomatoes and this year their goal is to rise to 5,000 tons, as they begin to export to the international market.
“The project has been a gift from God. It has encouraged our sons and daughters to seek a better education and they are already joining the project but with a professional vision and a fresh experience,” says José Melchor.
A fundamental part of the project's success has been the adoption of a green business model, which allowed it to be competitive in an area that is not very favorable for agriculture. As part of its productive activities, DAAN LLIA carries out reforestation, water capture, and soil retention, as well as the installation of solar panels and pumps.
“In our area we don't have electricity, so we work with solar pumps. Almost 90% of the area is installed with photovoltaic cells, which helps us lower our production cost,” he says.
In partnership with the IDB, FIRA launched its first green bond in 2018 for approximately 151 million dollars to support ventures in four categories: protected agriculture, efficient use of water, energy efficiency and renewable energy.The sustainable actions of DAAN LLIA qualified them to receive resources from this green bond.
Interview with José Melchor (in Spanish)
What is a green bond?
Green bonds are a fixed income financial instrument whose proceeds are used exclusively to finance projects that actively contribute to the fight against climate change. In this way, investors can acquire them as an asset from which they expect to obtain an economic return as well as environmental and social benefits. Today, institutional investors worldwide are increasingly committing themselves to supporting sustainable investments: Green bonds are one of the instruments at their disposal to fulfill these commitments.
To give greater assurances to investors about the use of the funds, issuers of green bonds allow an external agency to carry out an independent review of the conceptual framework of the deal and follow international standards. In this way, investors can gauge each bond’s environmental impact, using indicators published annually.
Since green bonds must show results of their impact, they generally benefit green industries with data that are easy to measure, such as renewable energy. Sustainable smallholder agriculture, until this bond, was not one of these industries.
DAAN LLIA, Melchor's jitomate factory in Mexico:
Therefore, the IDB designed a new methodology that allows measuring the environmental impact of small companies focused on protected agriculture, more commonly known as “greenhouse agriculture,” a financial innovation unique in the world. The methodology has even been recognized by the main international organization responsible for validating “green bond” standards, the Climate Bond Initiative.
With this recognition, other financial institutions in Latin America and other parts of the world that want to issue their own green bonds will have a way of showing results to investors. In particular, this will stimulate access to rural credit in areas affected by climate change that are implementing alternative agricultural techniques for restoration, preservation and better use of natural resources.
“Lawrence Pratt, the expert who designed the methodology had an intuition that protected agriculture was valuable from an environmental perspective. But he surprised even himself with the impact,” say Isabelle Frederique Braly-Cartillier and Enrique Nieto, specialists in the IDB Financial Markets Division. “These approaches can produce up to 35 times more than in the open field, with up to 80% less water. They also use much less pesticides and fungicides per unit of production. The results indicate that they will help a lot in the development of resilient agriculture,” they added.
The value of this financial innovation will have a huge impact on credit expansion to support sustainable farmers who, like José Melchor, use environmental protection and restoration strategies in their operations, and who contribute to the development of their communities with their businesses.
“I feel very excited because it has taken us a lot of work to reach this level of development and benefits. Above all, I am proud of the improvement in the lives of families and the enormous economic spill not only on those involved in this project, but for all our people,” says José Melchor.