How Your Caffeine Fix Can Help Change The World For Less Than $5 A Day
Cuppa joe, anyone?
Coffee. We humans love the stuff. We consumed 2.25 billion cups of it in 2017 — and its consumption continues to grow by 2.5% per annum.
In 2015, the coffee industry was worth $25.3 billion US dollars. Though this figure does little to convey it’s real value to many of the world’s poorest nations and the 25 million or so coffee farmers who occupy the space at the start of the value chain. Many of them are small scale, struggling with issues such as food security, land degradation, water availability, the expense of fertilizers, changing climate conditions, an aging farming population, and rural-urban migration. To those people, the value of the coffee that they produce is beyond measure.
The Plight of Coffee Farmers
Aside from the fact that the majority of the world’s coffee farms are to be found in subtropical and equatorial regions which can be heavily influenced by climatic and geological factors, the leading cause of the coffee farmers’ plight is the way that the industry is structured.
Coffee is a cash crop; as such it is heavily subject to price fluctuations in the global market. Farmers sell into a collective buying unit, from which it is bought and sold perhaps multiple times before reaching a retail market or being served in a hospitality venue.
This kind of industry structure renders farmers mostly powerless. Without the ability to differentiate their product, they must become price takers, lacking the autonomy to demand a fair price for their product.
Nor is there any regulatory structures that ensure they get paid fairly. The abolishment of trade clauses of the International Coffee Agreement in 1989 combined with Vietnam and Brazil induced the “coffee crisis” of the 1990s and early 2000s.
During that period, less than 20% of the price of coffee from the grocery retail segment typically went into the pockets of farmers.
As coffee became increasingly commodified, the market became ever more volatile.
This situation is Not Unique
It happens all over the world in unregulated markets and particularly in agriculture due to the persistent disconnect between producers and consumers.
In the coffee industry, however, there has arisen a unique opportunity to help some of the world’s most impoverished individuals and empower them collectively.
As the coffee industry continued to grow and evolve in countries such as Australia, the US, and Japan, “coffee culture” came into vogue.
Discerning customers began to care not only that there was coffee in their cup, but that it came from a specific place, that it was roasted and produced in a certain way.
For the most part, farmers failed to reap the benefits of the higher prices charged specialty brands during this period.
Eventually, growing awareness of the socio-economic and environmental issues facing producers placed pressure on brands to undertake initiatives to improve outcomes for coffee producers. One of them was Voluntary Sustainability Standards (VSS) which farmers adopted as a way of differentiating their product, thus entitling them to higher prices. For the most part, VSS failed and has been criticized for imposing the idealistic standards of external stakeholders on producers rather than creating functionally coherent systems with tangible outcomes for local communities.
VSS did, however, begin to swing the spotlight onto producers and pave the way for the third wave coffee movement to take hold and expand the industry’s horizons.
Third Wave Coffee
For the most part, third wave coffee places emphasis on where each individual coffee comes from. For those familiar with wine, the concept of geographic zones might be best explained as a terroir-driven approach to production. The farm and the producer, rather than the roasting house, are pivotal to determining each coffee’s unique characteristics, though coffee varietal and processing techniques are also sometimes given a nod.
Another unique characteristic of the specialty coffee industry is the propensity for micro-roasters to undertake a practice known as “direct trade.” Direct trade is characterized by a direct and transparent relationship between the roaster and the producer, though this may be facilitated by a third party, known as a “connective business.” Connective businesses often occupy a space in the background, though some have a more conspicuous role. Those that do are often associated with a cafe or a micro-roastery that interacts directly with the public.
Connective businesses generally function as an importer or exporter, whose role it is to break down production and transactional constraints that would normally prevent the producer from entering into the specialty coffee market, and create shared value for both the producer and consumer in so doing.
Shared value is the concept of creating something of economic worth while simultaneously creating a good or service with social worth that addresses the needs or constraints of society.
In the context of direct trade coffee, the creation of shared value generally takes place when the unmet needs of farmers are fulfilled.
- Providing the collateral for new technologies that improve production techniques or acting as the guarantor for a loan.
- Building strategic alliances with non-traditional partners, such as working with a non-government organization (NGO) to direct finances and resources to where they are most needed.
- Improving transparency and distribution of value along the supply chain by reducing interactions with excess partners, thus ensuring that a more significant share in revenue is directed back to the farmer.
This approach allows for differentiation from below and restores sovereignty to the farmer or cooperative, giving them bargaining power. It also creates a shorter value chain, connecting them more closely with the consumer, incentivizing a focus on quality and further reinforcing demand.
It’s an approach that benefits all stakeholders and leads to the formation of long-term trading relationships, creating stability and growth, and enabling continuous improvement in the industry.
Systems like VSS, on the other hand, generally result in the consumer paying more for compliance, though they don’t necessarily experience a deeper connection to the producer or get a better product. Nor does VSS have the structure or transparency to guarantee a better financial return to the farmer, even if they are compliant.
The Specialty Coffee Market
Specialty coffee now accounts for around 10% of the global coffee market and is the fastest growing sector in the industry. In the U.S., a staggering 59% of coffee consumption fell into the specialty category in 2017 (though how much of that also falls into the category of direct trade is unknown).
Millennials are soon to be the biggest spenders in the economy overall, and we’re the ones driving the upward trend in the specialty coffee industry.
Coffee is an affordable luxury that offers a unique and tailored experience from companies that share a similar value set to our own.
Location and branding also play an essential role in attracting the right demographic — we do, after all, live in the Instagram age.
Positive Changes for Farmers are Slowly Happening
On the producer side, things are a little more challenging to quantify. It’s a relatively new initiative so is yet to be the subject of an extensive amount of research. I have, however, found evidence that between 14–23% of total supply chain revenue is being paid either directly to the farmer or cooperative in at least three connective businesses. This was greater than the minimum price set by fair trade, though sadly in one case, barely so.
One roastery in Denmark, Coffee Collective, guarantees that it pays its direct trade farmers at least 25% more than the Fair Trade price. They also visit the farmers every year and work with them towards achieving desirable quality and sustainability outcomes.
Australia’s Seven Seeds now publishes the farmgate prices of all the coffees that they work with, which are also all direct trade. On average, they have been paying 53% more than the commodity price. This is precisely the kind of transparency that the industry needs, affording greater sovereignty to both the producer and the consumer as they contemplate with whom to trade.
Intelligentsia in the U.S. also works closely with farmers, holding a yearly gathering in a different country and bringing their direct trade producers in from other countries to convene and take part in the harvest together. This is a tremendous opportunity for farmers to become empowered through shared experience and cultural knowledge exchange.
There are many more independent roasters, cafes and connective businesses contributing in valuable and exciting ways to create opportunities, improve coffee quality, and encourage best practices in the coffee industry.
All you have to do now is find one near you.