2011

Direct Trade

rocky copyWhile a great concept, it is incredibly difficult, if not impossible for the typical roaster to accomplish. The typical roaster is one that does 100,000 lbs of coffee or less. A roaster of this size has many challenges to making direct trade work. In order to claim a relationship with a producer either a true handshake must take place or a corner must be cut. Not only is it hard to do, it can actually hurt the very farmer it tries to help.

The expense to make this work goes beyond most roasters ability to recoup the cost. At 100,000 lbs per year, your roasting facility is about 4 people deep. If one person sets off to origin to build this direct relationship it reduces the workforce by 25%. If you figure it takes at least a week per origin to build that relationship, and you do it for a mere 15 of your origin offerings, you are at a 75% work force for about 30% of the year. This is not sustainable.

The numbers don’t add up either. It would cost the small roaster about $95,000 in salary, travel and logistics to source directly from 15 producers. This does not include the assumed higher price paid for the coffee. That boils down to a per pound increase in cost to the consumer of 12-30% depending on whether it was being sold retail or wholesale.

In this economy, is that realistic? Of course not.

So what REALLY happens? The roaster builds a tight relationship with the importer that has the tight relationship with producer. If the importer says that they are doing good things at origin, the roaster can take them at their word and tell their customers the good that is being done because of this coffee purchase. That is at best an INDIRECT relationship.

I think it is also important to dispel the notion that if a roaster buys the top quality beans at a hyper-inflated price, that they are really helping the producer. To do this it is important to look at what actually happens at origin. DT Roaster flies to small Farmer X and shares dinner. DT Roaster explains that there is a great market for X’s coffee but it needs to be of the highest quality, if the farmer can clean the coffee to near zero defects then he will pay an extra $1 per pound. He is willing to take 5 bags of ‘the good stuff’ and even pay for it up front. He has just committed to spending a whole $660 more than the usual cost. The farmer now has to ask the mill to re-clean 5 bags of coffee, or do it himself. The labor adds up. Then, all of the defects are added to the lower quality piles of coffee. This could have the effect of lowering the quality and therefore value of a much larger number of bags. Let’s, for argument sake, say that the grade 3 coffee is reduced in quality a couple of points as a result and the value of that pile drops by 3 cents per pound. There is 2000 pounds of coffee in that pile resulting in a loss of $600. Farmer X is break-even at best for the advantage of this direct relationship. This is not sustainable.

Direct trade should offer both the roaster and the producer the opportunity to profit from a relationship. The best way this works is if the roaster is of a size that they can order an entire crop and then dictate the quality requirements. Then, when the defects get spread out it is by design. The roaster sells ‘the good stuff’ as a single origin high-grade coffee with a story behind it. They also sell the lower grades in blends for the commercial marketplace. The roaster gets all of the products they want and can count on year-to-year consistency. The farmer can invest in infrastructure, more land or better practices to deliver year after year.

The average roaster cannot offer this.

A solution for the average roaster: buying groups. I personally do not know of this happening but have heard of it. An example works like this: 10 small roasters get together and represent 1,000,000 lbs of coffee production. Each member is responsible for direct relationship building with one or two producers. All share in the direct relationship story. All this requires is an understanding importer who will manage logistics for the group.

Direct Trade is what the industry should strive for. It is a great ideal. Creative solutions like the one above will allow smaller roasters the ability to participate without going bankrupt. It will make more consumers directly attached to the coffee they purchase. Done right, direct trade can benefit all involved, but the average roaster just can’t get it done alone.

Rocky can be reached at rocky@INTLcoffeeConsulting.com

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