The coffee industry is experiencing a moment of utmost bloom, the spending capacity of consumers for coffee is increasing and yet small-scale coffee farmers struggle to survive.
Coffee farmers today, especially those farming on small plots of land, face a myriad of challenges. Most coffee farmers can’t provide enough food for their families year-round and have no savings, credit, insurance or alternate sources of income to compensate for when their coffee crop failed, or the market price is low.
Most of the time coffee farmers earn less than 8% of the final consumer price for their coffee. The added costs of agricultural necessities (like fertiliser) and disbursing middlemen further cut into what miserable profit farmers can pocket from the sale of their beans.
This calamitous situation is no secret, and yet, we are not translating that knowledge into widespread, meaningful change for the world’s coffee farmers, who continue living in poverty despite the industry’s growth.
This is not to say important change is not happening. There is an obvious drive in the industry to make a difference and organizations like Fairtrade, UTZ and Rainforest Alliance are trying to enable producers to improve their livelihoods and communities.
However, the situation is not that easy at all and the debate on whether the farmer gets any real value from being certified by these organizations is still wide open.
Certification has been clearly a great first step in awareness creation, and it played a crucial role in raising important issues on agenda, but still can’t be considered as the holy grail. Indeed, in order to be eligible for certification, producers must meet certain requirements, apply for the program and pay a fee to be licensed as a Fair Trade company. In return, they receive access to a large market of consumers who are willing to pay for this specific type of product.
What is wrong with certification trade models
“Slave labor found at Starbucks-certified Brazil coffee plantation” (D. Penha, Mongabay 2018), “Do Sustainable Certifications For Coffee Really Help Coffee Growers?” (A. Chen, NPR 2018), “The Problem with Fair Trade Coffee” (C. Haight, Stanford Social Innovation Review 2018) are only some of the articles’ titles that in the last years have fiercely attack the certification trade model.
This system, which on paper looks very promising, has instead many drawbacks.
First of all, in Fair Trade products there is often a misconception about where the premium price that consumers pay goes. This doesn’t mean that farmers do not have a guaranteed “fair” price, but that most of the time it is not proportional with respect to the premium price consumers pay. Indeed, a larger percentage of this premium price goes in the pockets of retailers and other actors of the supply chain which are closer to the final consumers.
Secondly, Fair Trade buyers are generally more concerned with quantity than quality. While Fair Trade guarantees farmers a minimum price for their coffee, they are not compensated for particularly great beans or motivated to constantly improve them.
Moreover, the certification is not able to guarantee to the farmers that it will be possible to find a market for their production. In fact, once the demand for fair trade products is exhausted, farmers are forced to sell their product as conventional and receive a lower remuneration despite having to bear much higher production costs.
These conditions feed a vicious circle in which the producer is exclusively given a right price for his work but no specific focus is directed to increase the resilience of the producers and their personal empowerment.
Which direction to take?
As you probably already got, the belief that a label is synonymous with sustainability is often unfounded and leads to profound market misunderstandings.
One of the most creditworthy answers to the shortcomings of the Fair Trade and other similar certifications is Direct Trade.
Direct Trade is a term used by coffee roasters who buy straight from the growers, cutting out all unnecessary middle-men and knowing who earns what in the coffee value chain. This system is based on relationships with producers that goes beyond the transactional to include a sense of equity manifest in mutual and transparent processes that promote best practices in coffee production and processing, to safeguard the rights and well-being of producers, the community and the environment (S. Panhuysen and J. Pierrot, Coffee Barometer 2018).
For example at Wakuli, we use a “grassroots” approach including cooperative-specific social and environmental impact KPIs (key performance indicators) in our business operations. This means that consumers that buy from us can decide not only on the coffee quality, but also on the farmer they are buying from and what impact they want to have on producers and their environment. For example, in the case of one of our smallholder farmer cooperative in Tanzania, this means that, in addition to the standard KPIs such as fair distribution among farmers and higher kg price for beans, the number of CPUs (washing stations to process coffee) that the cooperative invests in is measured per year. CPUs are a proxy for less pollution, higher and consistent coffee quality and more value delivered per working hour. In the case of our partner from Tanzania, farmers decide whether the additional money goes to the cooperative or goes to the farmers themselves. This means the cooperative only invests in value-enhancing additions (not the case with Fairtrade).
Why Direct Trade is the way to go
The example just made on Wakuli’s operations highlights some of the main strengths of Direct Trade.
First, Direct Trade brings companies to include cooperative-specific social impact KPIs into their business plans and it allows the retailers to decide not only on the coffee quality, but also on what impact they want to have on the farmers and their environment.
Second, Direct Trade aims to guarantee a more equal distribution of the value of coffee and to be fully transparent on pricing to consumers. A very powerful tool for transparent communication is the price breakdown, which we also use in Wakuli. This tool allows consumers to see the percentage of retail price (divided in farmer, logistics, roaster, retail margin and company service) and make more aware consumption choice.
Third, Direct Trade creates a traceable supply chain that allows customers to know exactly where their coffee originates and through which hands it has travelled.
How cool is that consumers know who produced their cup? Face, name and even direct contact? Basically, Direct Trade introduces you to your farmer!
Fourth, Direct Trade promotes long-term relationships with farmers allowing co-investments, price agreements and sharing of experiences and ideas. This new dynamic allows farmers to take a step forward and to express their own points of view.
Finally, while Fair Trade certification costs money, Direct Trade doesn’t and it can also guarantee higher coffee prices than in a Fair Trade supply chain.
What makes Direct Trade unique?
Direct Trade is where specialty quality and true value for the farmers come into play as the tight connection between the producers and roasters affects almost every aspect of the business. Coffee purchased in smaller amounts means producers can work to create particular flavor profiles and roasters can seek out the best beans. To decide on a price, farmers and roasters come to an agreement about what the crop is worth based on an intricate tasting process determined by the Specialty Coffee Association of America (SCAA) scoring. The farmers are then compensated based on the true value of the product, which ultimately makes them more likely to extend quality measures to those lots but it also ensures that farmers are still creating a great cup of coffee in future.
