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Direct Trade is Dead, Long Live its Founding Principles

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We have devoted a fair amount of real estate within this site’s pages to the popular specialty coffee industry term “direct trade.” More specifically, guest authors in this space have described how its co-optation within the industry has rendered it virtually meaningless since the good old days when direct trade pioneers such as Intelligentsia, Counter Culture and Stumptown helped it first take shape as a sourcing model built primarily upon the concept of quality with heaping sides of economic, environmental and social sustainability.

Yet never have we dug so deep into the direct trade problem — it is, at its core, a language problem — as have the researchers at the Centre for Sustainability Studies (LUCSUS) at Sweden’s Lund University who recently authored a report called, “Problems with Firm-Led Voluntary Sustainability Schemes: The Case of Direct Trade Coffee,” published last month in the journal Sustainability.

An oversimplified interpretation of the report might say, ‘Of course direct trade was doomed, because it was developed by the private sector, monitored by the private sector and, ultimately, enforced by the private sector.’ To be clear, direct trade’s death is not at the hands of its founders, some of whom today are fighting to keep its most agreed-upon founding principles alive while helping deliver some great coffee in the process. It is at the hands of the co-optors — the consumer market researchers, marketers and opportunistic corner-cutters who have so freely thrown around the term with no fear of retribution.

The study authors themselves come to a number of enlightening conclusions, not the least of which is this bombshell:

Direct trade is not working well in the US; it is more beneficial to those that co-opted it than to those that take it most seriously.

The Study

From the outset, the study cites the United Nations’ Sustainable Development Goal 12: “Ensure sustainable consumption and production patterns.” It also leads with the premise that “voluntary private regulatory schemes claiming to contribute to sustainability are a rapidly growing form of regulation.” It fundamentally views direct trade not as a marketing message, nor as a component of a corporate mission, nor even as an abstract concept relating to sustainability, but rather as a “firm-led scheme” — in other words, a kind of certification developed by and self-enforced by private coffee roasting companies.

From the report:

Discussions about direct trade can become muddled as the term is used in three different ways in the coffee industry: first, as a general concept for coffee sourcing; second, as a marketing strategy; and third, as a voluntary scheme. In this article, we will focus specifically on direct trade as a voluntary scheme.

For the study, researchers selected companies researchers recognized as “founders” of voluntary direct trade schemes in specialty coffee, including three in the United States (Intelligentsia, Counter Culture and Stumptown), and three in Scandinavia (The Coffee Collective, Johan & Nyström and Koppi) who recognized their U.S. counterparts as foundational in the history of direct trade. They analyzed public communications related to direct trade by studying each company’s websites from 2015 and 2016, as well as conducting interviews with representatives from four of the responding companies. (Names of interviewees were not provided, although each quote is accompanied by attribution to their corresponding company.)

As the many quotes in the published report demonstrate, each of the interviewees was deeply knowledgeable about the history, development and limitations of their companies’ individual direct trade schemes, as well the conceptual history of direct trade within the industry. Importantly, each was also remarkably candid in his or her replies.

The Co-Optation of the Phrase Direct Trade

As a specialty coffee news media organization, we can say with absolute certainly that the co-optation of the phrase “direct trade” is very real and widespread. In many cases, the legitimate direct trade schemes marketed over the years by the likes of Intelligentsia or Counter Culture in many cases have not been copied, only the language “direct trade” has.

It initially was most commonly misused by seemingly well-meaning young roasting companies wanting to emulate the models set forth by the direct trade “founders.” Within the past three years or so, it has since become all too popular among companies of all sizes, most problematically including some of the biggest ones, who bombard consumers with the term despite not offering any clear definition of its meaning, any evidence of an actual direct trade scheme or the slightest shred of transparency regarding sourcing.

This is a problem. From the report:

Interviewees noted a general increase in the use of the term direct trade by other firms and presented this in a negative light. The Stumptown interviewee described the “popping up” of “hundreds” of roasters in Portland that “claim to be direct trade roasters” but was dismissive of their version of direct trade in which “they might have gone on an origin visit, they might have taken a picture and met the farmer” but do it simply as a “marketing tool.” Counter Culture described the same phenomenon in which “lots of other coffee companies are using the term ‘direct trade’… [leading] to the term becoming somewhat diluted and nebulous and hence confusing [as] consumers are getting a lot of different messages”

The study names the Target brand Archer Farms as a prime example of a “direct trade” term co-opter unburdened by the threat of regulatory enforcement:

An example of this weak standard direct trade could be Target’s in-house brand Archer Farms. In 2015 and 2016 Archer Farms direct trade products were not all traceable to their specific origins, not even to a country level, and products from different regions used the same film clip of the same producer. In July 2016 Target announced a redesign and expansion of Archer Farms direct trade so there is now traceability for some but not all direct trade products, but online packaging and product webpages still do not state explicit standards related to price, quality, or traceability or include a link to more information about their direct trade scheme as of November 2016.

An Archer Farms brand Latin American blend labeled as "direct trade."

An Archer Farms brand Latin American blend labeled as “direct trade.”

Consumer-Facing Transparency

The study found that overall, between 2015 and 2016, the observable trend among all six “foundational” companies was a move away from communicating the concept of direct trade or publishing communications related to direct trade schemes:

Despite the growing popularity of the term direct trade within the US, founding firms have been quietly backing away from direct trade voluntary schemes over time… This trend can also be seen through web presence of direct trade schemes across firms and small actions that de-emphasize the term direct trade.

(It is worth noting that Intelligentsia and Stumptown were each acquired by Peet’s — which is owned by JAB Holding Company — in October 2015, right in the middle of this study, not that the acquisition is necessarily related to the companies’ changes in web communications.)

The study noted that the escalation in co-optation of the direct trade term had led some of the companies researched, particularly U.S. companies, to push for more consumer-facing transparency:

In response to the co-optation of direct trade in the US, founding firms shifted their strategy from a voluntary scheme toward greater transparency by increasing the amount of data provided to consumers, which implies a large and increasing role for consumers within regulatory governance.

In other words, rather than further developing their own direct trade schemes, companies might more readily open the books directly to consumers. In a rare bit of editorializing, the researchers argue that this is problematic, since consumers tend to be already overburdened and confused by sustainability-related purchasing data, as demonstrated by their proven confusion regarding third-party certification schemes such as Fair Trade:

The firms we studied reacted to co-optation by releasing large amounts of data, effectively expecting consumers to act as monitors and enforcers of standards, but we argue this will not improve regulatory governance.

The U.S. vs. Scandinavia

One of the study’s primary concerns is the difference between how direct trade schemes have functioned differently between the U.S. companies and the Scandinavian companies. As it turns out, The Coffee Collective and Johan & Nyström actually hold trademarks for their direct trade schemes in their respective countries of Denmark and Sweden.

These enforceable trademarks essentially solve the co-optation problem, yet they result in a potentially negative side effect. While both The Coffee Collective and Johan & Nyström are reputable coffee companies known to place quality at the forefront of their organizations, the researchers argue that any “firm-led” (a.k.a. private) trademarked direct trade scheme “rewards the first scheme to be granted trademark, which is not necessarily the best scheme.” And while the authors acknowledged that there was some involvement from actors of the state (a.k.a. government) in the issuance of those trademarks, they characterized that involvement as “weak” in that it had little to nothing to do with the creation of the scheme itself:

Both the US and Scandinavian contexts demonstrate the weakness of firm-led agenda-setting with the creation of a schemes optimized for firms’ private interest, in this case concerns for taste quality, rather than public interest in sustainable development.

On Quality and the Future of Direct Trade

As the study’s title suggests, its focus is squarely on “problems with firm-led voluntary sustainability schemes,” with a heavy emphasis on the word “problems.”

It is not intended to offer solutions, and like so many conversations surrounding sustainability in specialty coffee, it can be a bit of an exercise in beating one’s head against a wall. Yet the problems the “direct trade movement,” so to speak, currently face are in no way a reflection on the movement’s foundational founders, who all clutched one fundamental tenet tighter than all the others: Quality.

The sun around which all of the potential related benefits of foundational direct trade revolve has always been quality — a reality that was driven home to the researchers by the study’s subjects:

This desire for high-quality coffee justifies the need for direct trade in the eyes of founding companies and they criticize the limitations of commodity and certified coffees.

Quality has always had some silver bullet potential in the upper echelons of specialty coffee. While it is a premium differentiator, it can also build stronger markets, add value throughout the chain, and help achieve more sustainable relationships through stronger partnerships with a shared, singular goal. Yet if the past decade or so — coffee’s most quality-obsessed decade to date — has taught the specialty coffee industry anything, it should be that quality cannot match the power of communication.

We now have an academic study that authoritatively suggests that the phrase “direct trade” is more beneficial to companies that co-opt it than it is to the companies that actively participate in it through a systematic approach that focuses on quality. A little bit of specialty coffee has died.

(Note: Shout out to James Hoffmann for bringing this study to our attention through his coffee-focused newsletter. There’s also a lot more ground covered in the full report.)

Comment

11 Comments

Stephen Vick

Matt,

Interesting article and study, and I agree with most everything that is here. Although I haven’t read the full report, I’m wondering if this study looked into the effects of direct-trade marketing on how consumers’ value specialty coffee? There was another study presented by Ric Rhinehart at last year’s ICO Conference in Addis, that compared three countries in Europe with the United States and shows a clear departure in the early-to-mid 2000s in the United States in Gross Value Added for specialty coffee. Again, if the money doesn’t trickle down to the farmer, this isn’t helpful, but overall, the effect of Direct Trade marketing schemes in the US were attributed to this significant change in Gross Value Added, which is positive for the specialty industry as a whole. I’m trying to dig up the actual data from my photos from that conference, but here is an excerpt from one of the blog posts I wrote on the conference that talks about this particular presentation.

“One of the more interesting pieces of data from the entire conference was presented during this session: the fact that the United Stated has far surpassed Europe on the “Gross Value Added”  to specialty coffee. The “Gross Value Added” is the difference between the price of roasted coffee and the unit value of green coffee imports X 1.19. Or, in layman’s terms, the specialty industry in the United States has done a much better job of placing a higher value on specialty coffee at the consumer level than our friends across the pond. According to this data, this trend seems to have begun just after the coffee crisis in the early 2000s, around the time when many of the companies who have helped shape the “third-wave” movement and “direct trade” programs were founded. This added value on the consumer end is positive, but the question remains: How do small-scale farmers remain the main beneficiaries of the specialty market as consumers continue to appreciate a higher value for these coffees?”

Tionico

quote: “the question remains: How do small-scale farmers remain the main beneficiaries of the specialty market as consumers continue to appreciate a higher value for these coffees?”

With a wide range of “models” in action over the journey from dirt to cup, its hard to quantify absolutely. Most of the importers I deal with are BERY committed to “boots on the ground” at origin, working with producers to improve quality in the sections of the value chain THEY control, and mostly doing so on the promide “you provide me better coffee, I can get more money for it from the roasters, and thus give YOU more money for it”. I have watched this model work well in several specific instances where I have “followed” a particular farm’s production over several seasons. They who produce higher quality coffee are rewarded finanancially far out of proportion to their actual cost increases. This model is a more long term vision, and “beats” the standard old model where Importer happens across a one time great coffee, bargains the best price he can drag out of the producer, buys it all, gets a premium for it in the States, and never goes back. Equipping the producer (via education AND reward) to consistenly improve his output quality (and often quantity as well) improves EVERYONE’s lot, right down to the barista handing that finished cup across the counter to her patron.

Stephen Vick

Also…

Curious why you mention Stumptown and Intelligentsia’s acquisition by Peet’s/JAB, but you don’t mention Johan & Nyström’s acquisition by JDE/JAB last year?

Rodrigo Dumont

Nick, thank you for the article.

Like all your articles, interesting and relevant.

However, eventhough I have not read the study, it seems to me the producers were not included in this study; how the “Direct Trade” scheme has benefited our industry. In my case, and in many specialty coffee producers I know in El Salvador and Central America, this scheme by the movement’s founders and many others (co-opts) has been extremely helpful and been a large reason for the survival and sustainability of our farms. It would be dismissive to say this movement is dead, specially when it has lasted more than 10 years and it is still strong.

Andy Newbom

Direct Trade is awesome. Roasters using “direct trade” terms to buy the sexiest new cool famous farmer coffee SPOT from an importer and then buying a new farm every time is the problem.

We worked with Rodrigos family for 8 years. Without break. Because we made a commitment.

Rodrigo Dumont

Andy’s company at the time (Barefoot), is the perfect example of how Direct Trade worked, and still works. Thank you Andy.

Kyle Freund

I’d agree that direct trade continues as Rodrigo pointed out and an honest approach can help farmers, but I think roasters should be pushing harder to define it and call out those who only pay lip service, and make the concept more understandable to consumers.

But to determine if a direct trade approach is effective, I’d love to see a study into the effects of direct trade on organized farmers and cooperatives. Sourcing at the individual farmer level is great and helps those families; working to separate out lots does wonders for quality and can give a co-op ways to extend learnings to other farmer members; but ultimately many of the problems in coffee farming go back to price and farmers inability to feed their families, much less invest in quality. This is where well-managed co-ops can help. So my follow-up question would be if direct trade efforts undermine farmers’ organizations and then over long-term how this may affect communities and ultimately the future of coffee.

Bill Raymer

Interesting article but a little negative in my opinion. I have owned a coffee farm in Nicaragua for going on 9 years and sell our coffee directly to roasters. I personally now of a dozen small to large coffee farms that sell directly to roasters in Oregon, some being the bigger players in the coffee business and all throughout the US. Keeping a eye on the futures market pricing and with it being currently so low, today at $1.319 compared to the average cost of production being $1.40 plus or minus, direct trade for me and the other producers that have relationships with roasters is our only hope of a sustainable existence. In Nicaragua they have a saying “everybody has to eat”, well that holds true in the coffee industry, just like any industry you have many spokes on the wheel. So I suggest that the author of this article should not throw out the baby with the bath water on the direct trade issue, some miss use of the term, sure but just like other marketing lingo, shade grown, bird friendly… In Nicaragua no shade or the proper amount and you will burn the plants, bird fiendly, people (kids) are to poor to own either a BB gun or sling shot to shoot birds and must have trees for shade thus providing habitat for birds, I would say that is bird friendly. Well for me direct trade is alive and well and I hope it stays that way, I know my roasters appreciate me and my employees and the good coffee we produce. Have all my roasters been to my farm, no but I hope to have more in the future, like any small business man I am more concerned with keeping the needs of the farm met and improving on quality and volume. So with all that said keep drinking coffee and if you have an issue with direct trade do something positive about the issue, I know of a bunch more growers that would love to be in a position to sell you coffee from their farms and break the Beneficio/ Banking (the money lenders) noose that many of the smaller farmers fall prey to year after year. No disrespect to the author Nick Brown but I think the direct trade issue needs help and not constructive criticism. All the best from a Nicaraguan coffee farmer from Oregon.

Tionico

I reject the idea that “direct trade” is “dead”. Yes, far too many latch on to that “buzzword”, as with so many others (“sustainable” comes ready to mind, as does “responsible” .. responsible to WHOM?)

I know many who DO source great coffees directly from the producers on an ongoing basis, pay a premium for high quality, recoup that added COGS by way of higher prices to their customers who gladly pay up for the quality in their cup. AND know firsthand that the guy with his hands in the dirt is no longer a wage slave but a craftsman, well rewarded for his knowledge, experience, hard work. And I know farms who do everything possible to produce the finest coffees possible, and demand a premium price for them so as to maintain their high standards, which most often includes paying their own workers far above area averages, and often providing other perks such as medical care, school, on site housing.
Then there are they who simply have heard the name of the owner of the farm and on that basis claim “direct trade”….. but let’s face it: most regular customers of a given shop will sooner or later see though the smokescreen of “fine words” and judge the operation on the empirical quality they find in the cup. (I’ve also sampled some “direct trade” coffees I would not buy, as quality was, to put it plainly, was lacking. Most roasters I know who have any direct trade coffees (accurately speaking) also carry a range of other coffees readily on offer from many of the better importers. Different coffees have different “rungs on the ladder”. We need most of them. As do the customers. I don’t want to pay $8.50 for a hand done single origin outrageously great coffee on a daily basis. But to take a good friend there and indulge in such a coffee over a rare opportunity to relax and spend time together, oh yes. (its also great fun to take someone who THINKS they’ve had great coffee and put something like that in front of them, no explaination, just “here’s your coffee”. And watch their face when they taste it!!!!! Yeah, $8.50 for a cup of coffee…… in such circumstances, worth every penny.

Ric Hariyanto

Tionico elaborates this very well.

Significant (for my scale, it is huge, as it requires dozens of thousands of man hours and lots of “tuition fees” in learning and surely making mistakes which is part of the improvement process) amount of investment in terms of “boots on the ground” and (not only that, as in many cases it also requires acquiring or setting up) “forward operating bases” is required and has to be coupled with the philosophy of “premium price for premium quality for each guy along the supply chain” in order to produce the better consistency.

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