Some Excerpts from the ICO Coffee Development Report
A couple of decades ago, the concept of ‘direct trade’ was a fantasy and a business fallacy for most small to medium-sized roasters. There was just no cost-effective way to meet the farmer, shake hands, make a deal and move the coffee effectively. It is still hard, but according to the ICO report, we are making a difference and moving the needle for producers and their quality of life.
Let’s define the Coffee Global Value Chain. In a C-GVC there are transformative functions that happen in multiple countries, acted upon with high-efficiency operations, and manipulated with business relationships that benefit all with the transfer of knowledge and technology. In other words; from the people that grow coffee to the people that consume it, there is an agreement that each party does what they are best at and enhance the other parties, so the whole chain thrives.
The growing, exporting, importing, roasting and retailing of coffee is centuries old. Doing it on purpose for the benefit of all is rather new. Small roasters doing direct trade projects and really building a solid relationship upon which to do business is the current emerging model.
‘What is coffee worth?’ is a question at the core of building an effective C-GVC. The old model based everything on the commodities market pricing for Arabica and Robusta. A good C-GVC attempts to use a more thoughtful pricing model that starts with, ‘How much does it cost to produce?’ From there one can determine what is needed to make a reasonable profit and a sustainable life for the farmer.
Using production cost as a jump-off point then exploring all the intermediary steps will create a model where value can be increased through ’upgrading’. As stated in the report, “Upgrading can be defined as producers or firms moving to higher value activities to increase the added value, capabilities, and benefits from production.” It then proceeds to define three types of upgrading: PRODUCT, FUNTIONAL, and PROCESS upgrading.
Much of what we as roasters do falls into the PRODUCT upgrade category. Once we have decided upon our trading partners, we will offer technical support to build on the quality of coffee being produced. We help with education on best practices in growing, harvesting and varietal selection. We work together to explore different processing methods that might yield better flavors. We also help advise on social and environmental marks that would increase the value for the final customers in the C-GVC.
To do this requires investment. It takes time and money to bring about change. That is why, at the core of the C-GVC is the relationships of the participants. People want to do business with those they know, like, and trust. There is a realization that a win for one will be a win for all and that the chain will only be as strong as the weakest link.
Once the PRODUCT upgrades are underway, the next logical step is PROCESS upgrades. Make the production, buying / selling and exporting more efficient. Reduce costs in the roasting facility so the product cost will still be appealing at the retail level.
FUNTIONAL upgrades might be to help your growing partners learn to roast some of their coffee for internal consumption or to perhaps export roasted coffee. A great C-GVC will look for all sorts of creative ways to do the upgrades for the benefit of all.
Enter Covid -19
Coffee producers have a tough time in normal market environments. They take risks on borrowing money to plant, prune, and improve the farm. They have to locate seasonal workers and pray the weather does what it has to do to yield a crop. If they are successful, they sell more coffee, pay back the loan and turn a profit. It is not by any stretch of the imagination an ‘easy life’.
Just after many countries were finished with the 2019-2020 harvest, a pandemic hit the world. This catastrophe is boiled down to a “Market Disruption” in the coffee analysis world and is categorized with climate change, Political instabilities and other health crisis. What it means is the possible demolition of the farmers world and an end to the C-GVC that was created.
The solution however is the relationships built in the C-GVC. There are several sets of anecdotal evidence showing that consuming countries provided cash, education, long term contracts and support services like health care for the communities that were growing the coffee for the chain. They realized that C-GVC is not temporary or self-serving. It is long term, ‘in it together’ attitudes that create the strength.
With the education, health training and some financial help, farms are bringing in the 2020-2021 crop now while still battling the pandemic.
Near term Outlook
Can the small to medium sized roaster really make a dent on the global problems of farmer poverty, food security and sustainable practices? The answer is of course yes. It may be a small dent now but it is a growing trend with no end in sight. This relationship buying is recognized by the ICO as an important part of meeting the UN’s Sustainable Development Goals.
Coffee consumption was up in 2020 and is predicted to be up again in 2021. It is just going to be delivered differently. That is where innovations of the downstream participants in the C-GVC must succeed for the betterment of all. Finding ways to get coffee to where the people are buying it is 2021’s brass ring for roasters and retailers.
The total ICO report is about 100 pages. This is just a small takeaway for those of us that desire more direct relationships with producers. The rest of the report can be found here: https://www.internationalcoffeecouncil.com/cdr2020
by Rocky Rhodes
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 rocky@INTLcoffeeConsulting.com