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Transparent Trade Series: Finding the Essence of Direct Trade Sourcing

Employees of Nossa Familia Coffee talk to Timoteo Minas, president of the Cafe Artesanal San Miguel cooperative, on a visit organized by De la Gente.

The direct trade movement places a heavy emphasis on origin — from a marketing perspective, a coffee quality perspective and an economic justice perspective. As such, a growing number of specialty coffee roasters are spending time at origin, working with farmers to ensure they receive the desired quality outcomes while generating the desired community impacts. This ranges from the larger direct trade pioneers like Intelligentsia, Counter Culture and Stumptown, to growing players like PT’s and Bird Rock, to scores of smaller roasters scattered throughout the globe.

A typical articulation of the benefits of these direct trade efforts boils down to a variant of, “intermediaries are bad, and because direct trade eliminates them, it must be good.” This belief is cultivated among specialty coffee drinkers, who are allowed to envision their roasters working around an obsolete system of intermediaries to offer both farmers and customers a better deal.

When speaking more carefully, or when articulated by movement pioneers, the potential of direct trade does not come from simply removing middlemen. Rather, directness provides a means to work collaboratively to improve the supply of high-quality coffee, which provides better prices and incomes for farmers. This dual emphasis on spending time at origin to (1) improve the supply of high-quality coffee so that (2) coffee farmers can earn better incomes provides a simple framework for discussing what happens when specialty coffee supply chains are made shorter.

Andy Feldman, executive director of De la Gente, speaks with leaders of partner cooperatives at their annual meeting.

Question #1: How much time do direct trade roasters spend at origin, and what do they actually do?

A collective response to the “how much time” question is found in a 2011 CRS blog post on “How Direct is Direct Trade.” Since then, we’ve spent a lot of time discussing how often, and how well, roasters and farmers actually “collaborate around the growing process, roasting process, and taste of the bean,” as described in this piece from Achilles Coffee Roasters.

These discussions are important because they speak to the authenticity of coffee quality claims made by direct trade roasters, and as they intensify, a second question too often gets buried:

Question #2: Do direct trade relationships translate into better prices and incomes for farmers?

Whether implicit or explicit, this second question underpins the collective enthusiasm for direct trade. In their original articulation of direct trade standards, Intelligentsia insisted that “the price paid to the grower or local co-op, must be at least 25 percent above the Fair Trade price.” Expanding on this standard, Counter Culture stressed that “the cost of investments in quality and sustainability should not be borne by farmers alone. We recognize improvements in these areas by paying higher prices for coffees and working with transparent supply chain partners to ensure that those payments are distributed equitably.”

Generalizing these imprinting claims to the current movement, we are now led to believe, as the New York Times once wrote, that “direct trade relationships typically mean that the roaster guarantees to pay well more than the going Fair Trade price for coffees that meet an agreed-upon standard based on a cupping scale. If coffees score above that standard, growers earn even more.”

DLG staff and Les Stoneham, owner of Deeper Roots Coffee, meet with Moises Zacarias Miranda, a member of the board of the La Suiza cooperative.

For reasons both selfish (farmers need proper incentives to invest in the production of high-quality coffee) and selfless (farmers are owed a market mechanism that allows for more than subsistence incomes), the specialty coffee sector must care about how farmers are compensated. Therefore, when talking about superior and inferior sourcing, we must anchor on and evaluate roasters based on the actual relationships between coffee quality, prices paid for roasted coffees and prices paid to farmers.

De La Gente (DLG) provides one example of this end-to-end commitment in our work with cooperatives of small-scale producers in Guatemala. Among the many contributions, our sourcing processes provide farmers with better prices and greater price stability. We also work to ensure that cooperatives understand pricing terms and are able to read green coffee contracts and calculate actual earnings. DLG considers ourselves as part of the direct trade movement because we work directly and continuously with farmers on the ground, and many roasters we work with spend time with us getting to know farmers. However, one could just as fairly call us transparent middlemen.

In the end, the label isn’t as important as the tangible benefits provided by DLG; namely, our positive impacts on green coffee prices and farmer incomes. Conversely, if we didn’t provide real economic benefits to farmers, then what does it matter what we call our trade model?

DLG is not alone in looking for new business models that benefit farmers. Vega Coffee in Nicaragua says it acts as exporter and importer, flying roasted, packaged coffee to its U.S. warehouse and selling to consumers online. Shortening the value chain and shifting more value to farmers, Vega says, earns growers four times what cooperatives pay. Swillings Coffee in Colombia says it operates as a direct trade collective that allows small-scale farmers and roasters to participate in direct trade transparently and at low scale. This Side Up Coffees says it either buys directly from the farmer or provides a complete breakdown of the coffee price, down to the payment to the farmer — while backing it up with proof.

Timoteo Minas gives a presentation on cooperative leadership to representatives of DLG’s partner cooperatives.

What sets these direct trade models apart — and it may seem trivial, but it is not — is that they begin with the more tangible commitment to improving farmer incomes, and work backward to figure out how to improve coffee quality, then tie the farmers’ economic returns to quality. This may or may not come from roasters spending more time at origin, and this may or may not come about as our marketing materials fill up with more and better origin stories. It does come from ensuring that farmers and roasters collectively appreciate the economics of quality-based coffee markets.

What aspects of coffee quality are being evaluated and compared? What investments are required, by whom, to improve these critical quality markers? How are green and roasted coffee prices responding to changes in the different aspects of coffee quality?

If more direct trade roasters commit to these kinds of processes, we can move the specialty coffee sector away from simple claims about the number of days spent at origin and toward claims about how these efforts and investments result in amazing coffee for consumers and tangible economic benefits for farmers.

(Editor’s note: This is the first post in an ongoing editorial series with Transparent Trade Coffee (TTC), which provides an open, online forum for direct trade roasters who are committed to pricing transparency in their dealings with coffee growers. TTC’s Peter W. Roberts will be leading the collaboration with a number of guest authors working in coffee to explore various issues related to pricing transparency. This content has not been sponsored in any way, and any views expressed are those of the author/s.)

Peter W. Roberts is Professor of Organization & Management at Emory University and Academic Director of Social Enterprise @ Goizueta ([email protected]), which focuses on making markets work for more people, in more places, in more ways. Current [email protected] programs include the global Entrepreneurship Database Program, the Start:ME accelerator program, as well as the Grounds for Empowerment and TTC programs.

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