Just as squirrels learned to hide nuts and hibernate in the winter, birds learned where to migrate, and those weird fish learned to crawl on land for whatever reason they do that, so too must smallholder coffee growers evolve and adapt to changing circumstances in order to survive as a species. Furthermore, the supply chain in which they participate and the end users that want them to remain in existence must be cognizant of their situation.
The world coffee markets are rapidly changing (plural because there are few similarities between a Cup of Excellence microlot and a 3-in-1 sachet of beige powder except that they result in something wet in a cup), as are the supply chain actors that meet the markets’ demands.
Growth in coffee consumption, cultivation, and production reaching the far corners of the world, its increased segmentation and price variance, plus futures trading volumes, have kept coffee economics pretty volatile. There are commodity price swings, currency volatility, blights, and many other external factors that farmers cannot control. While the commodities traders that manage most of the movement have the ability to hedge uncertainty, farmers are mostly left out in the cold.
The first step in this adaptation process is for growers to understand the markets in which they participate (not an easy feat in isolated rural areas) so that they can see their farms as businesses, rather than being treated paternalistically by governments or like a resource such as water or coal by intermediaries. Then, to carve out a lasting place in today’s market there are three important factors for smallholders: cup quality, productive sustainability, and commercial consistency allowed by direct relationships.
Specialty-grade cup quality
Though the fastest growing segment in coffee is instant due to the newfound taste for coffee in markets like China and Russia, the exploding production capacity of places like Vietnam is mostly Robusta and commodity-grade Arabica used in instant. Furthermore, a 2 hectare farm in Central or South America could never hope to compete with the production cost efficiency of the mega-farms that produce commodity product. Specialty coffee, however, is more labor-intensive, requiring more finesse; therefore, few economies of scale are attainable for the big guys and small farmers can be cost-competitive. Furthermore, for a small farm with good growing conditions and basic processing infrastructure, the difference between commodity and specialty grade can lie simply in careful monitoring and a little added elbow grease. That added effort could mean a big economic impact. If small farmers are just covering costs selling into the commodity-grade market, earning 50-75% premium over the C price in the specialty market (reasonably attainable with good growing conditions) could mean an enormous increase in farm income and improve the family´s situation significantly.
Many farmers are seduced by the potential income of technified farm management, implying crowded planting of high-yielding varietals and cutting down the shade trees that were necessary for their old delicate heirloom varietals, thereby creating a monoculture. To spite farm income being limited to the lowered quality ceiling this kind of production mandates, a couple of years later the problems begin. The soil is empty of the nutrients that trees used to provide and the farmer must purchase more synthetic fertilizers whose prices in Colombia are often based on the US dollar. The increased temperature due to the lack of shade and the monoculture make it easy for the broca (borer beetles) to propagate, so the farmer purchases and sprays costly and dangerous insecticides. Income is soon back to previous levels and more vulnerable than before. (roya is another can of worms deserving of its own article)
While it is difficult to think about the long term when the short term is so uncertain, the vulnerabilities created by agricultural intensification far outweigh the potential short term cash flow they stand to generate. Our group in Colombia has recently embarked on an effort to reforest coffee plots and have found that while shade trees are extremely beneficial for coffee ecosystems, they help the farmer’s bottom line in terms of cup quality, blight propagation, dependence on synthetic inputs, and can provide a source of food for farming families.
Direct Relationships – Commercial Consistency
Price volatility is at least as great a threat to smallholder survival as productive sustainability. While selling to specialty exporters increases farm income, it is in almost all cases by a factor of the current international commodity price, which can easily dip below production cost. However, specialty roasters on the other side of the world don’t buy green coffee based directly on a factor of the C-Price. Therefore, selling directly frees farmers from the price volatility of international commodity markets. It’s also important to mention consistency of sales. If a farmer sells to a specialty exporter for a good price one year there is not always a strong indication that they will get it again the following year if the exporter just needs to meet demand of x tons of y quality coffee. However, many specialty roasters want to know exactly by whom and from where their coffee is made, and are interested in directly sourcing unique, exclusive, single-farm microlots year in and year out and forming lasting, mutually beneficial relationships with growers.