Five Strategies from Five Coffee Luminaries on How to Keep Smallholders Viable

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by Michael Sheridan of CRS Coffeelands Blog

Two weeks ago, I suggested that the coffee business is broken and that we need to take extraordinary measures to fix it: create alternative pricing mechanisms, build a permanent institution to foster cross-sector collaboration and send explorers to the frontiers of coffee to search for new insights. We have our work cut out for us, but not all the news is bad. This post identifies — with the help of some coffee luminaries — five separate but closely related strategies that are helping keep smallholders viable today and will likely be part of any successful efforts to help them thrive into the future:

Get Organized and Stay Organized

“We understand that aggregation through cooperatives and associations can significantly contribute to improving access to credit and risk management tools, especially by small farm holders, and better equip them to manage market volatility.” International Coffee Organization Belo Horizonte Declaration Third Consultative Forum on Coffee Sector Finance, 2013

Bono may deliver the message more clearly when he croons “Sometimes you can’t make it on your own,” but I read the ICO statement as a clear call for improved farmer organization in the coffee sector. Our experience suggests that organization also offers farmers benefits beyond the access to credit and risk management tools that were the focus of the ICO meeting on coffee sector finance. These include expanded access to non-financial services and markets, increased economies of scale, a voice in public policy discussions and social capital that farmers can call on in times of need. Some people call this set of benefits empowerment. As we see it, smallholder farmers can’t make it on their own, and industry can’t make it without smallholder farmers. While not all the smallholders who have organized are competiting effectively in the coffee market, all the smallholders who have competed effectively in the coffee market are organized.

Build Better Relationships

“A good relationship is a natural hedge.” Craig Holt Atlas Coffee SCAA Symposium 2012

The audience for this message may have been a room packed with coffee industry thought leaders and innovators, but it echoes loudly here at origin, where farmers also see direct relationships with roasters as an important part of their strategy for weathering shocks on the farm and in the market. Earlier this year, we surveyed more than a dozen farmer organizations in Central America representing more than 6,800 farmers on the impacts of coffee leaf rust and their strategies for coping with it.  In discussions that focused primarily on smallholder liabilities, relationships with roasters came up again and again as an important asset. While direct relationships can’t keep the bottom from falling out of the market, they can help mitigate the impacts of market shocks so farmers’ fortunes don’t fall as far or as fast as they might in the absence of relationships.  How? One important source of relationships’ value to farmers are the relationships themselves. Coffee and cash aren’t the only things traded bewteen buyers and sellers. Direct trading relationships based on the values of transparency and mutual benefit can foster a rich two-way information exchange.  Today, coffee flows downstream from origin to the market on a raft of information: farm and lot data, processing details, grower biographies, etc. And market intelligence flows upstream from the market to the farm–everything that helps growers and farmers’ associations make better decisions about their farms and businesses, from general market and pricing trends to roaster-specific sourcing guidelines and coffee presentation strategies.  It may seem like a modest source of value, but it can be vital to growers trying to navigate uncertainty. At the First International Coffee Rust Summit in Guatemala back in April, coffee farmers hit hard by coffee rust were weighing some big decisions, including these: whether to replant coffee, and what varieties to plant if they chose to stay in coffee.  Farmers wanted what we all want when grappling with a big investment–some reasonable information on the return they might expect. Growers in direct relationships with the roasters who buy their coffee could solicit this information directly. But the countless thousands of growers whose coffee finds its way anonymously into the blends of far-off roasters were left to read the inscrutable signals of the market. And beyond the intrinsic value of relationships lies their instrumental value. Direct trading relationships are rarely undertaken for their own sake. They are usually developed between growers and roasters to create shared value–more production, better quality, certifications, or some other win-win proposition that further helps everyone along the chain minimize risk and maximize value.

Achieve Greater Differentiation

“Your competitive advantage is quality.” Geoff Watts Intelligentsia Coffee 1st Annual Nariño Coffee Chain Event, 2013

During the keynote address of an event CRS helped to convene in Colombia earlier this year, Geoff Watts told a few hundred smallholder coffee growers from the rugged mountains of Nariño that this is the future of coffee. That if they try to compete on the basis of efficiency, their days as coffee growers will likely be numbered. And that while they need to continue to invest in improving their efficiency, that quality-based differentiation is the key to their long-term viability in coffee. This message echoes loudly in Nariño, which has been recognized as the source of some extraordinary coffees and where the average farmer has less than one hectare planted in coffee–not likely enough to meet the basic needs of farming families even at high levels of productivity. But is it the right prescription for everyone?  In a global marketplace in which coffee production is increasingly consolidated in countries with highly efficient production models, and in which the supply of washed Arabicas is dwindling as a percentage of total supply, quality-based differentiation seems to be a reliable way for smallholders to ensure continued access to high-value markets.

Separate Like Crazy

“The more you separate, the more money you will earn.” Stephen Vick Blue Bottle Coffee Let’s Talk Coffee 2013

We have put lot separation at the center of this segmentation approach in our Borderlands Coffee Project. When it works, it can deliver free money to farmers who produce high-quality coffee by matching what they are selling carefully to what buyers in different segments of the market are seeking.

Increase Efficiency on the Farm

“They need a quantity of quality.” Thompson Owen Sweet Maria’s/Coffee Shrub writing from the 2010 GCQRI Congress

At this year’s SCAA I shared data from our field work that showed baseline yields for smallholders under 900 pounds per hectare in Mexico and Central America. Even farmers who succeed in each of the other four areas mentioned above are not likely to meet the basic needs of their families if yields are so low. So increased yields are necessary for farmers to achieve a quantity of quality, they not sufficient to make farms more profitable and sustainable. Some of the best thinkers I know in coffee have convinced me how the exclusive focus on yields can be dangerous. Increased yields don’t necessarily increase efficiency if they are achieved through heavy investment; they may make farms less efficient if the investments needed to achieve them are disproportionately large. A farm’s efficiency is only improved by investments in new technologies that require fewer inputs per unit of output.