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When Quality Falls Short: Exploring Risk in the High-End Specialty Trade

coffee cherries ripe on a farm

Creative Commons photo by Coffee Management Services.

The Wall Street Journal yesterday published a must-read story for anyone interested in the future of direct-trade relationships for premium coffees among growers, importers and roasters.

The story revolves around two essential questions: 1) Who is at fault when contracted small lot coffees fail to meet quality expectations; and 2) What can be done, if anything, to revise contract language to mitigate risk among all parties involved — primarily producers, importers and roasters?

(more: Exploring the Economic Impacts of Microlots with Counter Culture, Stumptown and Intelligentsia)

These questions are farther reaching in the specialty world than they have ever been before, as an increasing number of smaller roasters seek to build and maintain relationships with specific farms. Meanwhile, unforeseeable economic instability and acts of nature — rain, drought, la roya, etc. — will continue to challenge crop consistency and coffee quality, even at the premium market’s highest levels.

For some perspective on these issues, the WSJ reached out to reputable sources, including SCAA executive director Ric Rhinehart, Michael Johnson of Johnson Brothers Coffee Roasters, and Thompson Owen, a buyer from green importer Sweet Maria’s. Here’s what Johnson told the WSJ:

“Right now, it’s all done on a handshake,” said Michael Johnson, president of JBC Coffee Roasters, Madison, Wis. He said his firm missed out on $15,000 in profits in a 2012 taste dispute over 100 150-pound-bags of coffee from a Salvadoran grower’s farm that “lacked sweetness and multidimensional flavors.” He had to French roast the coffee — a dark roast that isn’t ideal for these expensive beans—to salvage the purchase, in a move he equated to “coffee blasphemy.”

Luis Araujo, the fifth-generation coffee farmer in El Salvador who grew the coffee, blamed the taste problem on moisture in the refrigerated shipping container. Both men say they welcome a contract that better addresses coffee-quality issues.

There is a crucial problem here. Both parties are operating on relatively small scales, where every contract represents significant risk and margins are slim across the board.

(more: On Marketplace vs. Origin: ‘Like It or Not, We Are All in This Together’)

I spoke to Johnson last week at his roastery, prior to the publication of the WSJ story. One important question he posed was, “How many guys are there like me?” That is to say, how many relatively small-scale U.S. roasters are actively seeking out the world’s best lots — either through direct relationships at the farm level or through relationships with importers? How many roasters are, Like Johnson, indeed willing to pay a premium for the world’s most interesting green coffees, in part because of growing competition, and in larger part to strengthen and maintain mutually beneficial relationships with growers?

Finally, with those questions in mind, how many of these kinds of roasters — with small scales and thin margins — are taking a huge risk every time they commit to a contract on a lot? All of them, right?

These, I believe, are new frontiers in the specialty coffee trade, and it will be interesting to see who takes the lead in discovering solutions on any number of fronts — contract language, transparency, quality control measures, etc. — that can help protect the interests of all parties involved.

We’d love to hear your thoughts in the comments section below.

Comment

5 Comments

Mark McKee

Nick, what a great article and so much could be said but as with our company, whose desire is to work primarily with Direct Trade, although we do provide others that come directly through a relationship we have with a broker, we experience some of these things but as one individual shared, it’s all done on a hand shake. That is great but you need to have a team in place to work with quality control, our Sumatra coffee we work with, has a team of people working with the quality, so do our Uganda growers we work through.

We must all remember that coffee is an agricultural product and there will be issues from year to year such as what we are experiencing now with Roya and the rain situation in Brazil. One of the key areas is pre ship samples, when the coffee is processed at first, the roaster should be able to receive a sample, then, just before it’s loaded, once again. These are safeguards to help protect the roaster from getting poor quality coffee, they are not absolutes but someone needs to follow the coffee through the pipeline, so many things can happen. None of this is an easy fix but coffee people are the most passionate people in the world about the people who provide us with coffee and the environment, personally, I think it’s exciting to watch roasters get excited about working with some of the growers directly and even more so, when the smaller roasters, not just the big players are able to get involved.

Marshall Fuss

I am the lawyer on the task force that is creating the new contract(s) and worked with the journalist on this story for several weeks. For those who want more information, Andi Trindle Mersch and I are presenting an update on the project at the SCAA Expo this month in Seattle, Friday, April 25 in Room 310. http://www.scaaevent.org/?p=lectures

Nicoli Dell’Arciprete

I am a coffee trader in El Salvador and have bought from Luis Araujo since several years and never had a problem.
I know his work and know he is committed to quality issues but one thing is “damage” problems (as moisture in the container) and other is “quality” (lack of sweetness compare with what? last year crop?)…..I think specialty coffee business must be done “against sample” each crop, as “quality” of coffee varies year by year in a farm depending on many factors (Roya, rain, ect).
A way to avoid this problems is contract the coffee (or not) once importer has received type sample and has approved it (or not).
You cannot expect exactly same characteristics in a cup from year to year even it comes from the same farm.
Regards
Bliss Products Intl. Corp.

Andy Newbom

Direct Trade without a contract is not direct trade to me. It is just trade. A complete transparency contract ensures that every player in the entire chain knows the costs, prices, profits and responsibilities of each party. In Direct Trade there is a myriad of players and hands involved. Put it in writing, clarify and document everything. Leave nothing unsaid and un discussed. Work to a mutually beneficial win-win scenario always.

At Barefoot Coffee we had two contracts with all Direct Trade partners (we were 100% Direct Trade)
1. a five year contract that stated that we would buy AT LEAST xxxxx pounds each year at a price NOT to go below $x.xx as long as the quality met X,Y and Z standards. Second it stated our goal was to buy more every single year at higher prices every single year.
2. We made a very complete, long, detailed transparency contract with each purchase of every microlot from every producer every time.

the transparency contract clarified every detail and told everyone exactly how much of the total price they were receiving for what.

But at the end of the day these were our partners, friends and we were there for them no matter what. We had several times where we accepted less than perfect coffee and STILL honored our side of the relationship buy buying it anyway at the prices we agreed to. Shit happens, nature is fickle, you can’t control everything. We had several times when we had a very high priced blend coffee along side another 4 amazing lots from the same producer.
thats what Direct Trade relationships is all about. It’s a long term relationship that will NOT always only benefit you.

Put it all in writing, every detail, agree on it, sign it, share the info. Do it right

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