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Direct Trade Myths and Why Some Farmers Can’t Afford to Care About Quality

coffee farmers beans in hand

Creative Commons photo by Neil Palmer for CIAT

by Nora Burkey

Direct trade, albeit a fuzzy concept, is generally regarded as a positive and socially responsible practice in today’s coffee industry.

Buying directly cuts out the middleman — coyotes and cooperatives alike — so more money stays with the farmers. But what about another trend: Large transnational roasters that set up branch offices to buy directly from smallholders, eliminating the middleman buyer yet paying the same low price. This is as direct as trade gets, yet it brings up some serious concerns surrounding justice and sustainability.

In my experience, the number of coyotes involved in the coffee trade is diminishing. On the surface, this also seems like a positive trend for other green buyers and farmers. However, consider this anecdote about a coyote and farmer in Mexico named Emilio, as presented by Daniel Jaffee in his book “Brewing Justice.” Emilio earns one peso on each kilogram of coffee he sells, and this is before subtracting the cost of gas and other necessities. He’s also a coffee farmer with several plots, and he admits he does not know the C price, meaning, he’s equally as information-less as the farmers he buys from. He only knows what they tell him at the warehouse that buys his coffee.

(related: Sustainable Values Combined with Market Tools: A Future for Specialty Coffee)

Emilio may not be the norm for coyotes, and he certainly does not fit the traditional image of an opportunistic middleman. It can be argued that Emilio is performing, as Jaffee writes, a “vital function in remote communities,” including transportation. Some farmers even prefer the coyote’s services, because he will buy whatever coffee they have and he imposes no demands on quality. Much like the recent headline on instant coffee’s alarming popularity, I wonder if there shouldn’t also be an article titled, “Some Farmers Can’t Afford to Care About Producing High-Quality Coffee.” Why? It’s a lot of work, and quality-demand-free business from middleman buyers can be more consistent.

Michael Sheridan often writes of his attempts to organize small-holder farmers in Nariño, Colombia, and has found that some producers do not want to organize at all. Why? Sheridan notes a lack of market incentives to organization, and that the local market already produces enough incentives for people to continue growing coffee without organizing. Whether people want to believe it or not, organizations of farmers — Fair Trade among them — often come with significant quality standards, and a lot of farmers feel the compensation is too meager to justify the cost of compliance. Without organization, farmers are much more vulnerable to exploitation, but they’ll also never be accused of non-compliance. There is a freedom in that.

“Given the way risk and rewards are distributed in the coffee chain, it is not surprising to me that more smallholders are not committing to a quality-or-bust stance,” Sheridan writes. “In my experience, growers tend to share the market’s rewards for high-quality coffee with roasters but bear the risks of quality-oriented production alone. More equitable risk-sharing arrangements must be made if smallholders — those least capable of bearing risk — are to commit to filling the supply gap for extraordinary coffees.”

(related: NGO Consortium Calls Out Roasting Industry for Poor Efforts Toward Supply Sustainability)

Thus, in my estimation, the coyote becomes a vital part of the supply chain, willing to buy coffee that is more or less unsellable to any organization or anyone interested in quality coffee. We can’t successfully cut out the middleman before we address the problems that middlemen are currently solving, primarily the fact that not every producer finds enough value in high-quality coffee.

Vega Coffee is a new venture that aims to cut out as many middlemen as would seem humanly possible. The only ones they’re keeping are the ones to transport the coffee. Their goal is to train farmers in roasting, so farmers will collectively own their production and roasting operations, and then will sell roasted coffee directly to consumers in an online marketplace. This is reminiscent of Pachamama, a farmer-owned coffee company comprising five cooperatives in Nicaragua, Peru, Guatemala, Mexico, and Ethiopia, whereby the group of cooperatives outsource their roasting to Thanksgiving Coffee Company, but all profits from the sales go back to the five member cooperatives.

(related: Vega Coffee Piloting New-School Trade Model with Old-World Elements)

These kinds of farmer-focused examples are rare. In reality, the coffee chain is generally comprised of a motley crew of middlemen. Vega says that while farmers are paid less than $1 a pound for their coffee, specialty coffee companies are selling their coffee for upwards of $20 a pound. This is, unfortunately, not exactly true, because it actually gets a whole lot worse. One double shot of espresso is usually between 14 and 18 grams of coffee, and may be prepared with water, steamed milk, or by itself, at prices reaching $5 or more for a drink, and baristas expect, rightfully, a dollar extra for the work they’ve put into making it. The truth is, in fact, coffee in a retail bar is very often sold at more like $20 every 60 or so grams, with one pound being roughly 453.592 grams. That’s about $150 a pound.

At the same time, the industry has produced a lot of coffee-driven people, many of whom care a good deal about the taste of coffee and about the producers who grow it. In collaboration with farmers, companies have participated or created many give-back programs. Consider Green Mountain Coffee Roasters, a world leader in coffee development funding that also happens to pay for development by buying, roasting and selling coffee for a huge profit.

(related: Buy a Bag, Plant a Tree: A Roaster’s Model for Smallholder Sustainability Amid La Roya)

Should we pay farmers more? Absolutely. Should we support farmer-owned roasting? Totally. Should we support middlemen, too? I would argue that there are circumstances in which we should. There might be a space for the coyote, as there is a space for everything else that stands between a consumer and producer: That $20,000 espresso machine, hours of barista training, time spent on the sample roaster, absurdly generous amounts of milk and sugar, and any number of expenses that make up a coffee company’s overhead. Perhaps it’s not about feeling bad about how many people are a part of the supply chain, or how many folks make money off of the world’s coffee habits, but about making sure we provide a space for everyone who relies on coffee for survival to do their work better and with more just and sustainable approaches in mind.

If farmers do not want to produce better coffee because they are bearing all the burden of quality improvements, I am not sure I feel all the comfortable asking them to. Until we create better incentives for quality, coyotes will still play a vital role, and large transnational corporations will still find coffee farmers who would like to sell without going through the difficulties of organizing. Furthermore, middlemen wouldn’t carry such a negative reputation if at the end of the day producers still made a decent living. If the only thing that helps producers make more is organization and/or quality investments to please direct traders, two things some producers don’t always feel is worth their while, then our quality-focused, just trading initiatives are broken.

Whatever happened to paying people a living wage because it was just the right thing to do, and to stopping the market  from calling all the shots? Quality is not equivalent to justice; encouraging quality is only a means to facilitate justice. If it’s not facilitating justice well enough, we must find out why, and make steps to improve it. Otherwise, coyotes will continue to provide much-needed services, and even that is something we may not be collectively proud of at the end of the day.

Comment

13 Comments

Jim Wheeler

Somehow you’ve overlooked the growing mountain of home coffee roasters who wish to buy unroasted beans. And why don’t coffee growers offer their product directly online?

Shunt McGoven

Because it’s hard to convince people to pay for shipping. Reasonably Fast, Reliable, international shipping isn’t cheap.

Shunt McGoven

Because it’s hard to convince people to pay for shipping. Reasonably Fast, Reliable, international shipping isn’t cheap. It would be hard to compete with a Sweet Marias if you had to charge $50 a pop for shipping.

Want to put your coffee in America and then sell it out in green form like sweet marias? Then you need to have enough coffee to fill a shipping container, finance the export/importing process, Pay a warehouseto store it, pay someone to send out your packages, build and maintain a website and make sure you have decent customer service. You think many small coffee farmers could pull that off and make a profit?

Nora Burkey

Many coffee growers would not be able to offer their product directly online without some kind of support, which is what VEGA is attempting to provide them beginning in Nicaragua. Access to internet and various technologies would be an issue for one thing, as well as literacy (both computer literacy and in general), as well as fluency in multiple languages. Furthermore, you’d still need to put coffee through a huge process involving lots of other people. Coffee comes from a cherry bush, so even to sell it green to home roasters online, you’d need processing and transportation services (as well as the storage, etc Shunt has mentioned), which means you’d need either other people to do that, or the resources (and desire) to do that all by yourself. It’s a lot of work many people–forget small-scale growers, people in general–have no individual time for, hence teamwork.

Stephen Eng

I agree with the points you made in this article Nora! There are some people out there to exploit coffee farmers, but the middlemen also serve to make the process from coffee cherries to consumers more efficient. I think the specialty coffee industry can support higher prices to give middlemen, not just farmers, more reason to commit to quality.

Price Peterson

I heartily agree with the writer. Ms. Burkey’s point that the middleman, and especially the ‘coyote’ are often essential , is true. I have seen farmers who have little water to wash their coffee, raining while trying to dry it and then a two day mule carry to get it to town. The coyote will always buy it. Most ‘direct trade’ buyers will not. In Bolivia the coyote is called a ‘rescatista’ – which they really are for the farmer.
To Mr. Wheeler, one reason coffee growers refrain from offering their coffee online is reluctance to put themselves in competition with their roaster clients.

Pascale Schuit – Coffee Sourcing and Sustainable Relationships at Union Hand Roasted Coffee

Nora, this is an interesting article and raises some discussion. if I am correct, the statement you try to make is that:

Cutting out the middleman is a bad idea since they still play a vital role to farmers as some farmers can’t afford to care about quality.

I can’t see how this is related to “Direct Trade Myths”

As you say, Nora, “Direct Trade is a Fuzzy Concept”. It is often interpreted wrongly. I’ve been working, or more accurately “embedded” within coffee farming communities as a social scientist for nearly four years. And this has given me an insight into the complexities of the coffee supply chain.

First, the middleman. Cutting out the middleman was a popular phrase in the early days of Fairtrade. I would argue that it was Fairtrade who demonized the exploitative middle man / coyote. According to Fairtrade, farmers had to come together, pool resources, certify themselves and export their coffee.

Any “true” direct trade green coffee buyer knows and deals with several middlemen in the chain. The exporter who often is in charge of quality control, export logistics, and “farmer/buyer communication” in case the two don’t share a similar language. Then there is the dry mill to prepare green coffee for export, and the importer.

Direct Trade is not about eliminating the middlemen. Direct Trade is not green coffee buyers flying in with a suitcase of money, hopping on a bus for a six hour hilly drive and exchange that suitcase for a couple of sacks of green bean. Let’s demystify that myth.

Direct Trade is about transparency and traceability. The farm gate price, the price paid to the farmer, should be clear to all parties. It should cover their costs of production and include a premium for quality. Other costs and fees are negotiated separately. Roasters appreciate and pay for the services of middlemen too, such as exporters who work with the farmers all year to improve quality. That is one of the reasons why your average cup of high-quality coffee is so expensive; farmer and middlemen receive a good price for the coffee.

Of course there is also the traditional middlemen, the “coyote” the one that adds little value to the coffee. The coyote only pools the coffee of various smallholders and transport the coffee from A to B. The coyote does no or little quality control, export logistics or linking the farmer to the roaster directly. But there are some advantages for the farmer; no quality demands and payment on spot (although this payment may be deemed low)

It’s not about right or wrong, or having one system. Direct Trade is about giving farmers the option, or the choice to improve quality and sell “direct” at elevated prices. True Direct Trade often comes with education on how to process, harvest and store high-quality coffee. Any farmer, educated or uneducated will say …“all of that is extra work, extra inputs, which means higher costs of production. I need a higher price otherwise I won’t produce the quality you request”. Direct Trade is about giving farmers negotiating power, giving farmers the choice to sell part of their harvest with a premium. Instead of saying, if you follow these rules I will pay you at least a minimum of USD $1.40/lb plus a 0.20 premium. (the FLO min price)

Second; the Direct Trade green coffee Buyers, often work for roasters sourcing high quality coffee. These buyers will be the first to admit that they only buy a percentage the total harvest. They buy the top quality. No farmer produces only top quality beans. The farmers’ job is to sort out the bad beans from the good beans during the harvest and while processing them. The lesser quality beans are sold locally.

“The harvest” sounds as if it is a single action but in reality there are three or more passes with gaps of 2-3 weeks in between. The peak harvest has often the ripest cherries. Personally, I would encourage smallholders to sell their first and last harvest to the middlemen. He pays directly and in the first and last pass it is too costly for them to send the pickers to only harvest the ripe cherries.

I have been told “If you really want to help the farmers, you buy all their coffee not just the good quality”. These people miss the point of true Direct Trade. Direct Trade is a business orientated way of “helping smallholders/coffee farmers” it is about rewarding quality, instead of subsidizing bad coffee as done under the FLO certification. Direct Traders are roasters and/or coffee shop owners. They are profit driven companies not NGO’s. Through transparency, traceability, and quality rewarding incentives try to create a sustainable supply chain. Direct Traders reward quality, something coyotes don’t do. They do not make claims about “helping the poor” as Fair Trade does. Direct Traders are very specific in their claims they help (poor) smallholders that have the capacity to produce high quality coffee by rewarding their quality. We know our model isn’t perfect, but at least we admit that we target a very specific group.

What Direct Trade and quality-incentive business schemes have done, is to break the monopoly of the middlemen who would buy all coffee regardless of quality at the same price. That’s good coffee going to waste because its blended in with the rest and the farmer was missing an opportunity to earn more.

Nora Burkey

Thanks for your points, Pascale, and I do for the most part agree with you, though I do think Direct Trade deserves a bit more unpacking. The title was not mine. I was not intending to make any real points about Direct Trade in this article (for that, I’ve written other articles). My original title was “In Defense of Middlemen,” as I believe a just supply chain is inherently composed of many players. I also think another one of my points was lost in the editing process, which was not just that some farmers can’t afford quality coffee. My point was that some farmers do not care about quality in general the way we might like them to care. I think there should be a discussion about that and how it relates to autonomy in the coffee lands. Should there be a space for growers who simply don’t care? It’s a question to ask, I think.

Stephen Eng

Addressing your question Nora, I think there is a place for growers who produce lower quality beans. There is a demand for simple coffee and the demand for higher quality, specialty coffees, which go for higher prices. Because of that growers make a choice with regard to the quality of their beans and who they sell to.

Pascale Schuit – Coffee Sourcing and Sustainable Relationships at Union Hand Roasted Coffee

Thank you Nora. I love you’re original title it would have done more justification to your article. I agree with you we should stop demonizing the middle men as they are necessary in the value chain.

As you point out not all farmers want to join a farmers organization, not all farmers care about quality. Rational economic decision making would suggest that this in reality it means that the financial incentive offered to them is not large enough to care about quality. But, maybe we should ask the farmers the question: ”Why don’t you care about quality?”. Rationality of decision making is limited by the information farmers have, that is why transparency and traceability are such important concepts.

I wanted to add that not all farmers are in the position to produce the quality many roasters require. A low elevation farm growing varieties that have a tendency to be more astringent will even if they have the right infrastructure and knowhow be unable to meet the strict quality requirements of many roasters.

As an industry we need to have discussions about how we can improve the situation of these farmers. I agree with K.C. O’Keefe local buyers and local business could be part of the solution. I would argue that they should be part of the solution.

Thank you for raising these issues Nora.

K.C. O’Keefe

Calling any middle man a coyote is unjustifiably inflammatory and not helpful in stimulating us to finding solutions for rural small farmers. We love to find someone to blame for the world’s poverty, and for the coffee industry the local buyer has taken the brunt of our rhetoric.

Local buyers usually (as in my 17 years of experiences in Peru) provide an essential service for remote rural communities. They are the once a week deliverer of cash, carried up mountain roads with risk of robbery ever present. Yes death by robbery happens, and what is the price/margin % of that insurance policy? Abusive Profits or Risky profits? Many times they take with them essential food supplies, and even act as local taxis and the only ambulance available. I would guess more than 50% of Peruvian coffee farmers (aprox. 70,000 families) rely on these essential services of their local buyers . . .

Most local buyers are children of farmers, or farmers themselves, who’ve started a micro business, and are doing with themselves exactly what we all want to do with the charity in our hearts (i.e. help alleviate poverty). We should be careful with our ethical claims and feeling victorious by alienating first generation enteprenuers who are struggling and risking their lives to overcome historic family poverty in perhaps the only window available for them.

In many scenarios local buyers and local business could be part of the solution, rather than view them in antagonistic terms. They will certainly be there for the long hall, they were there before us and will outlive all Fair Trade and Direct Trade mechanisms.

Regardless of what trade mechanism we use THE elephant in the room is basic farm economics. There is a minimum production size to be a “sustainable farmer”, just as there is a minimum coffee shop sales for a coffee shop to survive. A farmer must have a minimum amount of land and a minimum productivity to break even; to “profit” (i.e. make a living”) they need even more. Coffee production poverty has as much if not more to do with “the FARM” than “the Trade MECHANISM”

If we start with farmers who have less land and/or less productivity than needed to make a living than shouldn’t that be an essential component of our interaction goals? Have each of our farmers grown there business as much as we have?Are we simply expanding our purchasing from more subsistent poverty entrenched farmers; or are we working with our farmers to help them grow their business as we grow ours? If the member coop grows from 50 members to 500 without individual farmers growing their business are we really achieving any of our goals of poverty alleviation through trade?

Bill RAYMER

Hello Nora, Good article in general.
I own and operate a medium sized coffee farm in Nicaragua and yes the small middle man “coyotes” are vital to the coffee production and overall supply chain for various reasons, mainly transportation, either a long bus ride or sell to to the local middle man. Out of the 200 plus small local farms only half a dozen or less have a vehicle.
The real issue alive and well in the mix is the large dry mills (benificios) that will take the large and I mean large and rich owners out for dinner and drinks and turn right around and treat the very small and the poorest owners like dirt, if you think that the only country dealing with a present day cast system is India, think again.
The first two years I sold to one of the bigger ones doing business in Nicaragua, one of the top five world wide, first year I received 4 different ending mill reports, all a lower number and the second year 5 reports all lower.
That is what every grower is dealing with on a yearly basis, doing there best with the one cash crop they have, then through into the mix trying to export….
Well I could write a book on what I think should and can be done to help the little guy, it boils down to money.
If you are a roaster or buyer, next time you quibble about paying over the C price for a bag of coffee that is truly direct trade (you have had a meal with the grower at the farm) then shame on you.
Look at the alternative, in the US back at the turn of the century how many farms produced our corn and wheat, versus the giant mega farms of today, where will the small holders be in 50 a 100 years, the same boat they are now unless the coffee industry looses the cool buzz / marketing words and puts the wallets where their mouths are.
I mean not to offend anyone with my post just sharing first hand thoughts.
Best regards!

Bill

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