A coffee-buying company issued credit to contracted smallholders to enable them to obtain the agro-chemicals they needed for their coffee. The loan agreement required that the farmers first deposit 25% of the loan value in a savings account, and that they sell enough of their coffee to the lending company to clear their debt. However, with strong demand and limited supply of high-quality coffee, other buyers in the same area began offering agro-chemicals without any savings deposit requirement. Smallholders went to whichever supplier offered the best terms, and sold their coffee to whichever exporter offered the best price.

Analysis:
The neglect of their obligations by the smallholders resulted in the contracting exporter suffering big losses, the smallholders lost their creditworthiness for future seasons, and the partnership collapsed.