Pilot Lessons Learned — Full Case Study
“We want to find markets where our hard work is valued. We want to sell to buyers that not only care for our beans but for our vision.”
~ Oswaldo, Co-op ACCC Peru
Yellow Seed began as a non-profit community marketplace for cacao growers, service intermediaries and buyers to connect and trade with one another.
On Yellow Seed, cacao producers around the world can share their stories and products, set pricing and build consistent trade relationships. Buyers can discover new farm origins, learn about product processing details and initiate trade.
Over the last few years, Yellow Seed heard from the community the need for:
- Deeper transparency on pricing (i.e., who gets what?)
- More social and environmental impact data reporting
- Increased market access for “emerging origins” — producers not known in the community
- Simpler trade transactions
Our Pilot Project
In response to the needs of our community and a desire to understand the challenge that sellers have in accessing markets, in 2017 Yellow Seed initiated a pilot program where we identified an outstanding emerging origin and built new profile design features to showcase a deeper level of transparency and environmental impact. We also facilitated a 6 MT shipment of beans from that Origin into the U.S., so that the beans were one step closer to buyers making the trade transaction simpler.
We choose to work with Co-op ACCC from Peru, an origin whose work related to agroforestry, conservation and gender equity are far above industry standard. Although they only had one solid buyer, we believed that by sharing their incredible story, we could connect them to new buyers in the US.
Our Objectives:
- Learn about the challenges facing ethical producers who want to connect to fair markets.
- Provide a new level of transparency for the cacao industry.
- Coordinate greater collaboration so that everyone ~ from farm, to port to maker and consumer would benefit.
Our Assumptions:
- There is a market that will pay fair value to producers for their efforts related to agroforestry, social impact and gender equity, regardless of certification status.
- There is room for market growth in the ethical cacao industry.
- Storytelling and transparency tools will provide buyers sufficient support to market the products to their customers.
- Collaboration will make everyone’s work easier, more expedient and financially fruitful.
Long-term Impacts
Our hope was that increasing market access for an emerging origin would translate into the following impacts at the farm level:
- Sufficient income security to support prosperity and wellbeing of cacao farmers and their families.
- Increased capacity for farmers to utilize agroforestry and conservation as climate change mitigation strategies.
- Farmers seeing themselves as a valued part of the supply chain whose opinions and decisions are considered and validated by the market.
Lessons in Vetting and Selection
We interviewed about 8 different co-ops and after 4 months of conversations, we decided to work with Co-op ACCC from the Alto Huayabamba Valley in Peru. We loved their dedication to agroforestry and gender equity, as well as their story of empowerment, as the farmers at Co-op ACCC are not only raw material suppliers they also have a direct stake in the Swiss chocolate company Choba Choba, as co-owners of the brand.
The beginning of the pilot involved an extensive exchange of emails to assess the story and coordinate logistics. We opted to create the origin and product profiles ourselves to better understand the onboarding process for sellers.
Due to the fact that we were speaking with multiple representatives from the co-op, some key information was miscommunicated, namely the status of organic certification and attribution of flavor awards for our particular varietal. It also took many months of communication to collect the necessary information. In light of this, a trip to origin actually may have been more time and cost effective.
Further, the lack of a common language around quality and flavor made it difficult to assess the Origin’s product. There are no specific agreed upon flavor standards in the cacao industry. Each piece of feedback we received about quality and flavor was wildly distinct making it difficult to describe to buyers.
If we had a magic wand, Yellow Seed would receive flavor feedback in two forms: (1) aggregated from a diverse network of farmers, buyers and intermediaries, visualized by a common tool and (2) specialized feedback from a select or representative buyer group. Those two things were not an option to us, so we leaned on trusted 3rd party assessors to provide a green light.
Lessons in Storytelling
Firstly, it was important to differentiate Co-op ACCC’s story from the collective brand Choba Choba. This choice was intended to protect Choba Choba from possible brand dilution or any damage to reputation if new products were created that were lesser quality, but it also meant there was less social proof for Co-op ACCC to lean on while engaging with a new market.
Our mission was to communicate the value of this product to buyers and their customers, develop a compelling story without mentioning Choba Choba, support impact by indicators, design a transparency pricing wheel and introduce a farmer-directed fund with an action-oriented impact goal.
We designed the following:
Over the course of the project, we learned that many buyers did not actually take time to read the profiles and the unique character of a seller and product did not seem to stand out as we hoped among an array of other “sustainable” or “quality” offerings.
Further, much of the market relies on certification to build trust with consumers. Sustainability or quality attributes that fall outside of the bounds of certification need better methods of authentication and verification to build sufficient trust.
The new transparency features however, did spark industry interest and the personalized impact receipts were well received.
Moving the Beans — Finance and Logistics
A Lesson in Loans
Typically, farmers’ cash flow is strained as their payment waits until the beans have been approved and paid for. YS believed that low-risk bridge funding for farmers could be very helpful. To do this, we explored three options for farmers: Typical Loans, Kiva’s DSE Program, and Social Impact investors.
Typical — Quickly, we learned that typical bank loans were not an option for new origins. Banks and institutions want a stable track record of sales and financial statements. Collateral is also often required to complete the loan.
Kiva — Kiva’s Direct to Social Enterprise Program (DSE) was the most exciting funding option. DSE launched in 2016 to explore whether it can reach more social enterprises and lower operational costs by facilitating direct lending. This seemed liked a great option but the plan faced two main obstacles:
- In the application process, Kiva’s DSE program required the co-op to have 2 years of financial information. Kiva was a great partner in finding creative solutions and gave the option to have the loan cosigned by another organization.
- We were under the impression that the DSE program did not involve crowdfunding and the turnaround time for the loan was short. Both proved not to be true at the time. Unfortunately the timing of preparing/processing the application and crowdfunding the loan did not line up for this pilot.
Social Impact Investor — Our third choice was to reach out to Yellow Seed’s network of people who believe the cacao supply chain can be improved. This option felt very value aligned, but it was more expensive than Kiva and more similar to a bank loan. Yellow Seed secured a short term loan in our name for half of the funds needed for the purchase at ~8%.
*For other parties importing cacao, we encourage you to explore option #2 if you match Kiva’s criteria.
Lessons in Finance
Bringing in cacao from a new origin for the first time revealed the challenges of importing at a specified cost and quoting prices to prospective buyers prior to arriving at the warehouse. YS encountered 3 main challenges:
- Quotes ≠ Actual Costs — For the transportation provided within Peru, the overall total was $350 lower than quoted. For international freight, the shipping insurance was 45 cents (per $100) higher, handling and duties/taxes were lower, while customs was a lot higher than expected.
- Quantities/Figures Change — From Agreement to Free on Board (FOB), quantities and timelines can change due to things such as bags breaking or trucks breaking down. FOB means that the commodity has arrived to the ship and is now the responsibility of the buyer (YS).
- Customs Exams — We knew there was a chance we would be stopped at customs with our first import. As expected, we were selected for the standard VACIS Exam ($257 + $28 overnight payment fee). We did not expect the cost of the Contraband Enforcement Team (CET) Intensive Exam ($1,647+ $28 overnight payment fee). This put our international freight cost $2,000 over budget. (~45 cent, 5% increase in price per kg).
Lessons in Collaborative Shipping
Yellow Seed believed that multiple buyers could save on costs by working together to collaboratively ship a large quantity of cacao. The quote we received to split a container with a fellow non-profit in Utah was priced at the LTL (Less than load) rate. The total cost to YS would have been $800 more to split a container than to get our own 20’ container. There was an additional terminal handling fee of $875 to sort the LTL shipments.
Shipping a pallet in the US is expensive, ranging from $150 to $350 with small increases with each bag added. We were not able to find groups of interested buyers that were located close enough to warrant a pallet shipment.
For both international and domestic shipments, having a concentration of buyers desiring the same processed form of cacao is necessary for the numbers to work out.
As new entrants into the shipping world, we were also surprised to experience how relationship based the shipping industry is. Each of the freight services we spoke to required a referral from a known contact. And even with contacts, we had trouble getting timely responses (2 week+ delays) from freight carriers as new customers looking to move 6MT of cacao.
We feel good about our choice of East Bay Logistics as our cacao warehouse upon recommendation from Meridian Cacao and others. The cost we are most aware of is the load-out costs. Each time we pull a bag(s), it is an average cost of ~$50. Therefore it is most cost effective to retrieve multiple bags at the same time.
Lessons in Marketing
Beautifully designed profiles with impactful stories and transparency features? Check.
Great quality beans landed in a warehouse in California? Check.
All systems go–we were ready to start selling beans.
The audience we had in mind for this product was outside of the craft market and focused on sustainability: wholesalers, couverture manufacturers, chefs, bakeries, beverages and other natural food companies.
Our initial engagement process looked something like this:
- 184 Personalized emails (and follow-ups) to the Yellow Seed list
- Newsletter and social media blasts and ongoing highlights and updates
- Reached out to referral and personal networks
- Attended conferences like Fancy Foods in NYC
We took a more creative and hands-on approach in later stages of the pilot. Market research included walking into cafes, coffee shops, stores, bakeries, engaging chef schools, education and corporate spaces, and reaching out to potential channel partners such as co-packers and processors. We ran a 3 week concentrated campaign with clear pricing structures and incentives, highlighting efforts to coordinate orders. We also published a medium story describing the motivations for the pilot and selection.
For the first few months, we heard the sweet sounds of crickets. Emails and phone calls had a particularly low to zero response rate. We empathize. I mean, who really likes cold calls anyways?
We later learned that:
- The speciality markets are saturated, with chocolate makers receiving as many as 5–12 samples and new solicitations per week.
- Smaller makers have a noticeable preference for ‘popular’ or ‘vetted’ beans.
- Some bakeries, cafes, chefs and education kitchens are already sourcing or working with our beloved local bean to bar makers.
- Higher-priced products required certification or social proof.
- Trusted relationships and direct referrals are the strongest sales leads.
- Claims around sustainability, agroforestry, and quality seemed to blend together in sea of similar options.
There were 3 committed companies and a few others who were interested in purchasing the whole 6MT lot. When they found out it was organic but not technically organic certified, they retracted their interest. In general we found that established sustainability-focused brands had public commitments of organic certification to their consumers.
**Overall, we found that communicating value that lies beyond the scope of certification was by far the greatest challenge in this pilot.
Conclusion
Yellow Seed learned an immense amount by facilitating this pilot project with Co-op ACCC. Hopefully the lessons we learned will prove to be useful for others working in this business. For us, we learned that our greatest role will be in bridging the trust gap, in a way that allows a greater number of ethical farmers to connect with buyers.
Certification is a long and difficult path for most producers. Many producers who are doing amazing things when it comes to biodiversity, climate change and social equity may never be ‘certified’. Therefore our role is not to be an importer, or logistics coordinator, but to find ways for humans to…
… better communicate their value with one another.
Sincere appreciation for the countless hours of dreaming, scheming, experimenting and evaluating of so many people that came together for this pilot, to see what we might create together. We look forward to more collaborations in the future!
If you are interested in what Yellow Seed is up to next, you can read more in our Yellow Seed Reflections for an Evolution. If you are interested in some of the data and trends that informed our refined vision for the future, you can read more in Reflections Beyond Our Industry.
