February 15

Roasters Rock

Roasters Rock Monthly Column

After travelling to origin you will return home with a new perspective on the industry. What you think you know will likely be challenged. Many of us only have romantic notions about what life is like and the difference we can make in the lives of producers. The producers get a different perspective about us as well. We can all learn from real interaction.

We say things like “If the farmer will just pick the red ripe cherries he will be able to sell his coffee for so much more”. At the same time producers think that roasters are just rolling in money because they mark up the product so much. Both ends of the supply chain tend to demonize the exporters or other ‘middlemen’ for stealing all the profits and taking advantage of grower and roaster alike.

A deeper reality has to be appreciated by all in the supply chain. Many myths are just that; things said often enough that they must be true. Let’s see if we can test conventional wisdom and start to acknowledge that all members in the coffee chain from farmer to barista must work together to manufacture this thing we call specialty coffee. Value is added at every level. By the same token, value can be taken away at every level.

Myth 1: If the farmer will just pick the red ripe cherries he can ask for a premium for his coffee.
If this were true, farmers would just pick the red ripe cherries! Why then would they forego this financial windfall and keep doing it the ‘wrong’ way? Because in order to pick just the red cherries, they need to be able to pay their workers, and have someone actually agree to pay them more. Often the farmer is several people removed from those that would reward quality. The chain does not always have a way to reward quality. Small holders in Sumatra, for instance sell their cherries or pulped coffee to intermediaries and they are resold as many as five times on their way to market. To change the imbedded system will be difficult. It would require the exporter to rework the system and move processing patios out closer to the growing areas, or would require the smallholder to put in washing stations and drying patios on the farm. Just picking the red cherries sounds easy, but if you can’t ‘manufacture’ the pulped coffee into something that is worth more, it will lose its value and the extra effort will be wasted.

Myth 2: Middlemen just take advantage of the farmer and should be bypassed.
Using our example of the Sumatra farmer above, the middlemen are the only way to get the farmers coffee to market. They own the trucks and have established a chain of vendors that will move the coffee the 100+ miles from the farm to the export company. The small holder otherwise would need to take the days harvest every day on his own to sell it. He would use more in gas than he would make on the coffee.
There are stories of corrupt ‘coyotes’ that take advantage of the farmers, but without them the farmers would have no market at all. These middlemen also add a service of pre-drying the coffee so it won’t ferment on the way to the export company. The export company buys the parchment coffee and manufactures it into a finished green product that can be exported.

As long as this delivery system is in place, it would be impossible to reward the farmer for just picking the red ripe cherries. A new delivery system must exist to bring manufacturing closer to the farmer.

If the exporters did build drying patios and processing plants out in the growing areas, they would be abler to buy directly from the farmer, reward them, and create high quality, traceable lots. The expense to do this means adding many different operational units around the growing area and replicating their processing plant several times. Until there is a good business model to do this the exporter will not take the financial risk.

Myth 3: Roasters and retailers add exorbitant margin and the farmer deserves a piece of it.
This would be true if rent, healthcare, salaries, marketing and other operating expenses did not exist, but they do! Also, to state the obvious to anyone that has run a business, bills are paid with margin dollars, not margin percentages. While the markup in coffee may be high, a cup of coffee is still just a couple of dollars and you have to sell A LOT of cups to pay the expenses. Although it is possible to make a living, there are not a lot of independent coffeehouse owners living in mansions. Almost no shop could survive selling coffee alone. There needs to be other food products and hardware items to create enough revenue to pay all the bills.

Wise retailers have figured out that if they can do a portion of their business as a high-end, hand crafted offering like pour over, or roasted-onsite coffee they can charge a nice quality premium. They in turn can then pay more for a higher quality bean.

The supply chain reality therefore looks like this:

Retailers manufacture value through handcrafting, but need high quality green beans to start with.

Exporters or mills manufacture value through labor-intensive patio drying and defect sorting. They still need high quality cherries in order to get cup quality.

Growers just pick red, ripe cherries and find a partner that will reward the effort. If the partner does not exist, then he will continue to just strip-pick whatever cherries are there. He can choose to manufacture quality or not.

The good news for the industry is this: There is a growing mass of ‘third wave’ shops requiring the highest-end coffee and the supply of that coffee is limited. This increases demand and price. That drives the changes necessary to manufacture more specialty coffee. Everyone that wants to add value can then get rewarded.

Rocky Rhodes is an 18 year coffee veteran, roaster, and Q-Grader Instructor, and his mission now is to transform the coffee supply chain and make sweeping differences in the lives of those that produce the green coffee. Rocky can be reached at [email protected]

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