by Michael Sheridan of CRS Coffeelands Blog
Last month I published a post under the snarky title “It’s the market, stupid” along with snide Tweets like this one:
Hey, market: you want quality, heirloom varieties, water stewardship, farmworker rights? Create incentives for them. http://t.co/8mGFcRnJ2F
— Michael Sheridan (@coffeelands) April 7, 2014
I suggested that the best way to understand what happens (or doesn’t) at origin is to watch closely what happens (or doesn’t) in the marketplace. A few weeks later, SCAA Executive Director Ric Rhinehart opened the 2014 Symposium by making the same point, only better and more politely, when he suggested that coffee must command more value in the marketplace if it is going to deliver more value at origin.
Working from “back-of-the-cocktail-napkin” calculations, Mr. Rhinehart estimated the economic contribution that coffee makes to the people who depend on it for their livelihoods at just $0.54 per day. Check his work here:
- 100 million bags of exportable coffee
- 13.2 billion pounds of exportable coffee
- average price of $1.50/lb.
- $19.8 billion of revenue flowing to origin countries
- 25 million families dependent on coffee for their livelihoods
- 100 million people dependent on coffee for their livelihoods
- $198/person/year of coffee revenue
- $0.54/person/day of coffee revenue
This rough estimate comes in well below the $1-a-day extreme poverty threshold, and neither takes into account the fact that only a part of the FOB price reaches farmgate (to say nothing of farmworkers) nor discounts costs of production–two measures that would knock the estimate down well below $0.54/day.
THE SOURCES OF COFFEE’S VALUE IN THE MARKET (AND ITS IMPACT AT ORIGIN)
Mr. Rhinehart’s comments – and the whole of Symposium – were focused on two related ideas: (1) coffee’s future depends on industry’s ability to generate more value for the people who grow it and harvest it, and (2) industry can most reliably drive more value to source if it can position coffee to command more value from consumers. Mr. Rhinehart’s contribution to the conversation was not, mostly, focused on coffee, but on what coffee might learn from wine in this regard.
He told the tale of two bottles of wine featuring the same grape varieties – one that retails for around $18 and another that sells for $275 – and explored the factors that account for the difference in value. There is a clear difference in the intrinsic quality of the two wines, but the quality gap doesn’t fully explain the price gap, Mr. Rhinehart insists. Consumers pay different prices for them because they experience the two wines differently.
What constitutes a consumer experience is tricky stuff. It may be as much about perception as reality, which means we may need to pair the rigor of coffee science at World Coffee Research with something as robust in the area of consumer research.
Mr. Rhinehart suggests that information about the provenance of wine (and coffee) plays a central role in creating the perception of quality. But service and the consumer space are also critical aspects of the value storyline. Mr. Rhinehart owns one of the $275 bottles of wine that starred in his story. When he is ready to uncork it, he will do so with people he loves. And he’ll seek just the right place for the experience – one that combines good hardware (the right glasses, the right decanter) and great software (a sommelier who knows and delights in his craft) in a physical space that will unlock the full value of that bottle of wine. Coffee, he argues, must make this migration from beverage to experience if it wishes to command more market value.
THE VOCABULARY OF VALUE
I heard in Mr. Rhinehart’s presentation echoes of the one that Oliver Strand of The New York Times delivered to a Let’s Talk Coffee audience in El Salvador last year. Like Mr. Rhinehart, Mr. Strand invoked the example of wine to illuminate a way forward for coffee. Mr. Strand focused his comments particularly on communication–the kinds of vocabulary that might help evoke the ideas of the consumer experience Mr. Rhinehart describes.
Mr. Strand held up the “three vees” of wine as an example of an effective and elegant approach to communicating value: vineyard, variety and vintage. He suggested coffee may opt instead for three Rs, and wonders whether it may have already two of them in roaster and region. (He thinks the emphasis on relationships that has characterized lots of the Direct Trade communications–the potential third R–misses the mark. He said, memorably, that knowing who raised his pig doesn’t make his pork taste better.)
Whether or not you agree with the three-R recipe, it seems clear that we are still searching for a vocabulary that will help us communicate more effectively to consumers the sources of the value we create together. Whatever words we do decide to use, we need to charge them with meaning and infuse them with the kinds of associations to which consumers will assign greater value.
THE ULTIMATE PRE-COMPETITIVE COLLABORATION?
Repositioning coffee to command more value is a decidedly market-facing affair. But that doesn’t mean it is only for market-based actors.
Coffee’s storyline, like coffee itself, starts on farms in the coffeelands. If that storyline is going to change, everyone along the chain, from growers to baristas, have to work from the same new script.
Besides, everyone in the coffee trade stands to benefit from enrichment of the consumer experience that effectively increase coffee’s value. It may be the surest way to address the issues I have spilled so much ink on here over the past few years – seasonal hunger, coffee leaf rust, water resource management,incentives for quality and, more recently, farmworker rights. This is an effort that should meet with chainwide cooperation, not just from different kinds of actors performing different supply-chain functions, but also among competitors performing the same functions. It may be the ultimate pre-competitive collaboration.
Michael Sheridan is the Director of Sourcing and Shared Value at Intelligentsia Coffee. He also orchestrates the Extraordinary Coffee Workshop (ECW), an annual supply chain summit that convenes Intelligentsia’s Direct Trade partners from around the world. Prior to joining Intelligentsia, Sheridan led coffee programming for the international development agency CRS for more than a decade. He is a member of the SCA’s Sustainability Center Advisory Council, and has served as a volunteer advisor to the industry on sustainability issues since 2012.