Broker, Importer, ...?

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Broker, Importer, ...?

Postby Ed Kaufmann on Thu Sep 04, 2008 7:48 am

I was wondering if someone might be able to explain the difference between a coffee broker, a coffee importer, green buyer, etc. How do these people with different job titles fit in to specialty coffee operations who use direct trade and/or relationship models to source their coffee?

When I fly to Uganda, shake a farmer's hand (or the Ugandan equivalent. Kiss? Don't know yet), taste the coffee, love it, cash in hand, then what? How do I as a small shop get the coffee into my L12. Or, how do I as a larger specialty coffee roaster get it from the farm in to my warehouse? Who is involved in the middle?
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Re: Broker, Importer, ...?

Postby andynewbom on Thu Sep 04, 2008 8:20 am

depends on the country of course but there are so many hands involved in every coffee that it is amazing!

even those that are "direct: in some way usually involve several other hands somewhere along the lines as I understand it and have experienced it.

And one huge advantage of an importer and exporter is at delivery financing rather than arrival financing for the farmer. cash sooner is often better. But then they may not get as much cash so it is a balance.
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Re: Broker, Importer, ...?

Postby Ric Rhinehart on Thu Sep 04, 2008 9:20 am

Ed:

In the traditional definition of the terms, a broker never owns the product in question, but arranges the purchase between buyer and seller. An importer typically buys the product at its point of origin and handles the importation, and owns the product when it arrives. He may then use his own sales force to sell to an end user, or use the services of a broker (much less common in coffee today). Importers may also function as brokers, that is not ever owning the coffee. For example, you might arrange to purchase twenty containers of Uganda Bugishu's, and have them imported (logistics, insurance, custom entry, etc) by Importer X, but pay the exporter directly by Letter of Credit.

What does all this mean to you, a small buyer of coffee? Well, start by finding one or more importers who have inventory that you like. This is a good indicator that they understand the qualities you will be pursuing, and it gives you coffee to roast tomorrow. Equally as important, it gives you contacts to work with who can help guide you through the process of learning that you are undertaking now.

I would strongly recommend arranging an origin trip in the near future, perhaps with the Roasters Guild, who are currently planning trips to Panama and to East Africa. Ask lots of questions and taste lots of coffee, learn as much as you can. You will discover that the value chain changes in ways large and small from country to country, and indeed from year to year as new ideas and approaches to business are implemented.

In a sort of broad brush way, the typical chain of custody looks something like this:

Producer sells to consolidator, miller or exporter - this is influenced by the size of the producer's farming operation, the degree to which the producer processes the coffee, customs in the area, availability or access to finance, presence of cooperatives, legal structure within the country, and a host of other issues.

Consolidator or miller sells to or is exporter.

Exporter sells to importer, or directly to buyer (rare) - in many cases the miller is the exporter, or the exporter may buy parchment coffee and have it milled and prepared for shipping. In some cases a cooperative may function as miller and exporter for a group of farmers or primary cooperatives. Some larger farmers may mill and prepare the coffee for export and sell directly to an importer.

Importer sells to roaster (or other importer) - most importers will deal in back to back business, where they sell and deliver full containers to a roaster, and also carry inventories that they own and will sell in less than container load quantities. For smaller quantities cost will go up regardless of quality based both on risk and the added cost to the importer of storage, ins and outs, finance cost, cost to execute a sale, etc.

Before you leap into any kind of direct trade deal, be sure that you have a complete understanding of how the traditional market approaches function in the origin country you are working in. Do not dismiss out of hand those approaches. There are many highly engaged folks in export and import who are working hard to act ethically and to move towards a sustainable business model for farmers, traders and roasters. It is possible to have an excellent relationship with a farmer or group of producers that allows you to positively impact their lives while getting the coffee quality you need without having a "direct" trade model. it is also possible to make critical mistakes that will negatively impact the producers, your reputation, the health of your business and the continued improvements in ethical sourcing if you plunge in to a direct trade model without sufficient knowledge, practice and consideration of the huge number of factors in play in the coffee value chain.

Ed, good luck to you. The fact that you are asking the questions indicates that you have a desire to learn, and I think that you will find many in this community willing to share their knowledge, from producers to importers to roasters.
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Re: Broker, Importer, ...?

Postby Tim Dominick on Thu Sep 04, 2008 10:11 am

Ric- great explanation.

Ric touched on the importance of a good importer relationship, chances are if you have this established when you travel to origin, your importers can provide in-country contacts who will be willing to take you to farms that may pique your interest. This level of importer support is vital to virtually all "direct" coffees, especially as the relationship is being established.

As intrepid a soul as there is shouldn't wander around the countryside without having clear directions and a destination in mind, especially with cash in hand. I wouldn't suggest doing that in California let alone Uganda.

The RG trips are very good. A really nice cross section of experience levels amongst roasters and the origin countries really take great care to provide an excellent experience.
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Re: Broker, Importer, ...?

Postby phaelon56 on Thu Sep 04, 2008 11:41 am

Agreed re/the clear and thoughtful explanation by Ric. He touched on the importance of considering the financial risk factors involved and they are significant. At the RG Retreat we had some very informative info presented by Luke Harris and Jamin Haddox on potential issues related to product deterioration or damage during storage at origin, overseas shipping and even when the beans are being shipped within the US. Buying from an importer/broker stateside who bears the risk is a huge plus in my book.

I fully understand the appeal and potential value in the direct buying relationships that are gaining visibility and becoming more common among the big independent roasters (CCC, Intelly, Stumptown etc.) . But I'd want many years of experience at origin and very deep pockets - not to mention a high tolerance for risk - before I'd pursue such relationships.
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Re: Broker, Importer, ...?

Postby Oliver on Thu Sep 04, 2008 1:39 pm

Really great explanation by Ric. I think most roasters and buyers want to make the right ethical purchases. Building relationships with your producers buying directly etc. It is also my understanding that even the roasters who purchase “direct” still use many of the “middlemen”, maybe even more so.
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Re: Broker, Importer, ...?

Postby Sean Starke on Tue Sep 09, 2008 4:04 am

Yep, good overview, Ric. I'd just add that in addition to the financial risk the importers carry there's also a performance risk: the final user can't roast a claim. The importer has to be able to supply coffee when the roaster needs it, and the coffee has to be of the proper quality.
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Re: Broker, Importer, ...?

Postby Marshall on Tue Sep 09, 2008 10:32 am

The Green Coffee Association form of contract has a helpful glossary and an introduction to many of the issues that importers deal with in purchasing coffee. It was prepared under Paul Fisher's supervision, and Coffeed's Sean Starke also had a hand in it.

It's on line at http://www.green-coffee-assoc.org/images/finaldraft402.pdf.
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Re: Broker, Importer, ...?

Postby Peter G on Wed Sep 10, 2008 12:06 pm

Hello Everyone!

It took me a few days to weigh in here....

I'd like to begin by saying that the roles of the exporter and importer have, in my opinion, been undervalued by a large part of the specialty coffee community. I find that the word "broker" (like "middleman") is used to describe an agent who adds no tangible value to the chain, almost as an insult or something.

However, some of the most dynamic and influential people in our industry have been coffee importers. Coffee importers such as Erna Knutsen, Bob Fulmer, Pete McLaughlin, etc. were critical in INVENTING specialty coffee as we know it and as we collectively imagine it to be. Today, there are people working as importers who are dynamic, engaged, progressive, quality-driven, and are working their brains out trying to get great coffee to roasters. Exporters are much the same story- people like Salim Hanna, Hailu Hiwot, and George Willekes pioneered specialty coffee and its trade.

I say this because it has become fashionable in some quarters to dismiss the role of the importer and exporter as "middlemen" or "brokers" (Ed, I realize this dismissal is not part of your question, but I've been meaning to address this for a while now...please indulge me). Lots of people use these words to try to minimize the important work that importers and exporters do. New generations of importers and exporters build upon the work of those who went before them, just as roasters and baristas have. I would make a list here but there are too many to name...these people are engaged on a daily basis, along with producers, roasters, and baristas, in the quality coffee chain. Our industry would collapse without their efforts.

Ric has done a great job of presenting a primer of how the chain of specialty coffee usually works. The chain is, of course, different in every country and in every transaction. Sometimes, it is possible for one person to wear a number of hats (producer/miller/exporter, or roaster/importer for example) but it is a challenge to say the least. In my opinion, the system works best when the various parties involved in the chain are specialists in their field, working cooperatively and transparently with each other.

There is a misconception about "Direct Trade". Many people assume that means that the roasters involved in this kind of supply chain management get on a plane, go buy coffee from the farm gate, and usher it back home to be roasted. In fact, Direct Trade is when a farmer, miller, exporter, importer, and roaster all work together in cooperation and transparency to make a coffee transaction, with the idea that the transaction must be beneficial and sustainable for all involved. Really and truly, no agent in this chain is less important than the others. In our direct trade program, and this is the case with most of the roasters I know who are leading the Direct Trade charge, importers and exporters are recognized and valued within the supply chain; however everyone's role is clearly defined. One important feature- and I know this is something that Intelligentsia's DT program has at its heart, and Sweet Maria's Farm Gate program as well- is that price negotiation begins with the farmer, and other costs (milling, exportation, importation, etc.) are separately negotiated after that point.

Ok, so I got that all off my chest! Thanks for the opportunity to do that!

Ed, I think you are wise to seek clear definitions of how the coffee supply system works. In our case, once we come to an agreement with a farmer, we seek out trustworthy, quality-minded millers, exporters, and importers to help us get the coffee to our warehouse. In some cases, it was the importer or exporter who introduced us to the farmer in the first place! In other cases, it works the other way. This process is time consuming and difficult, and- this is important- this kind of business is usually transacted using the containerload as the minimum volume. With anything less than a containter (roughly 45,000lbs green) it becomes much more complicated and expensive, and is not an attractive proposition for anyone. The importer's role becomes even more important at that point. It's challenging for a very small roaster to get to that point; I think the best advice is to start slow and start small- building relationships with importers, starting to visit farms and get to know exporters, "stretching your legs" within the system to understand how it works and how to work with it. Ric's advice to look before you leap is very good; you don't want to put your company, the farmers, or the coffee at risk. I've known some coffee buyers who have (with the best intentions) gotten on a plane to buy coffee, and wound up causing severe financial distress on the farmer and on their own company.


Hope this has been useful,

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Re: Broker, Importer, ...?

Postby Sean Starke on Thu Sep 11, 2008 3:33 am

Well said, Peter. There is that special way some people say the word 'dealer' that implies that when importers are not actively engaged in exploiting enslaved children at origin we're busy in the basement making a new batch of crack to sell at the neighborhood daycare center.

I mean, really; I don't even have a basement.
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Re: Broker, Importer, ...?

Postby Edwin Martinez on Thu Sep 11, 2008 7:32 am

Lets not forget "Traders" in this deal...
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Re: Broker, Importer, ...?

Postby gabelucas on Fri Sep 19, 2008 5:35 am

Thanks to all who participated in this thread. This was super informative and I hope we can have more discussions like this for the new people in coffee coming up.
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Re: Broker, Importer, ...?

Postby James Hoffmann on Fri Sep 19, 2008 8:12 am

gabelucas wrote:Thanks to all who participated in this thread. This was super informative and I hope we can have more discussions like this for the new people in coffee coming up.


Thoroughly agreed!

As a new roastery you do feel pressure to seek out unique coffees, to deal directly and to shout loudly about your traceability.

Also a lot of new roasterys will doubtless find this a great challenge, mostly due to the economies of scale involved in buying this way. The more we understand the process the better chance we have of working within the industry to get where we want to go.
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Re: Broker, Importer, ...?

Postby K.C. O'Keefe on Fri Sep 19, 2008 4:59 pm

Thank you Peter and Ric for your educated notes.

I wonder where these definitions place a guy like me in the Peruvian coffee chain? Am I a "broker"? In some relationships I never own the coffee, yet I'm very involved in the quality selection, coop development, and international contracts . . .

I agree with the thought that the key question is what value each member in the chain is contributing, and then ensuring them a reasonable profitable payment for their services.

Saludos
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Re: Broker, Importer, ...?

Postby Robert Goble on Fri Sep 19, 2008 5:19 pm

K.C. O'Keefe wrote:...I wonder where these definitions place a guy like me in the Peruvian coffee chain? Am I a "broker"? In some relationships I never own the coffee, yet I'm very involved in the quality selection, coop development, and international contracts . . .

This may depend on how you get compensated in the various roles you play. How do you see it?
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Re: Broker, Importer, ...?

Postby Edwin Martinez on Fri Sep 19, 2008 6:07 pm

K.C. O'Keefe wrote:I wonder where these definitions place a guy like me in the Peruvian coffee chain? Am I a "broker"? In some relationships I never own the coffee, yet I'm very involved in the quality selection, coop development, and international contracts . . .


If you occasionally take possession and or have some say in QC along the way but never have ownership, I would say broker is appropriate. But maybe not in the traditional sense as you may actually be bearing some risk contractually.
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Re: Broker, Importer, ...?

Postby Ryan Mason on Wed Sep 24, 2008 11:58 am

Here's a question:

The growers are taking their coffee to the millers to get processed. The millers are selling the coffee to the exporter. It's the exporters responsibility to connect with the importers. Now this is where I don't get the link...do the exporters know the grade and quality of the coffee and activly seek out the importer that matches the coffee they have? Or is it that the importers are seeking out specific regions and finding the exporters to fill their need?
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Re: Broker, Importer, ...?

Postby Edwin Martinez on Wed Sep 24, 2008 11:00 pm

Ryan Mason wrote:do the exporters know the grade and quality of the coffee and activly seek out the importer that matches the coffee they have? Or is it that the importers are seeking out specific regions and finding the exporters to fill their need?


Ryan - it is one giant spider web. The answer is all of the above and then some. However in producing countries while many will actually score things such as acidity, body, sweetness, clean cup etc.. the conversation more often revolves around how many defects are acceptable because often coffee is negotiated while still in parchment then milled to the specs ordered according to demand. This sounds like great attention do detail and excellent QC for the buyer, and it is, but on the exporter and mill side this is to maximize value. If a buyer wants a coffee with X amount of defects and say the base sample has less than X; pure defects will actually be blended into it as it goes through the mill.
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Re: Broker, Importer, ...?

Postby Sean Starke on Thu Sep 25, 2008 2:35 am

Yep, exactly right, Edwin. Ryan, I deal with exporters that I give a specific 'recipe' to and others that have a specific type of coffee that I need. I would say that by far the weightier part of the business is the exporters/millers tailoring their product to the buyer's specifications, however.
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Re: Broker, Importer, ...?

Postby Marshall on Thu Sep 25, 2008 12:31 pm

Edwin Martinez wrote:If a buyer wants a coffee with X amount of defects and say the base sample has less than X; pure defects will actually be blended into it as it goes through the mill.

I assume what the buyer actually orders is "a coffee with no more than X defects." Is this a common practice? I assume the seller's motivation is to get paid at a higher rate for beans that would otherwise be sold through lower channels. But, don't some buyers object? It sounds a bit like a wheat miller adding contaminants to bring the flour up to FDA maximums.
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Re: Broker, Importer, ...?

Postby Sean Starke on Fri Sep 26, 2008 2:43 am

What's to object, Marshall? If I buy a coffee with, as you say correctly, a maximum of 20 defects, and I'm delivered something that meets the spec, what possible grounds do I have to say "you should have delivered me something with fewer!"? They're not adding "contaminants" in the slightest, as it's simply coffee.

Would I love suppliers to over-deliver? Of course. But I can not morally or ethically (or any-"ally") complain when they don't.

Now, of course, having said that, there are folks who do piss and moan...

"There are defects in the coffee!"
"Yes, I know. I graded it and found 18"
"Yes! Horrible looking things! What can we do?"
"Well, since what you bought allows for 20 we could thank the exporter for his diligent work on our behalf."
"Um, er...boy, UVA's football team really sucks this year, doesn't it?"
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Re: Broker, Importer, ...?

Postby Marshall on Fri Sep 26, 2008 6:49 am

Sean Starke wrote:What's to object, Marshall?

Adding detritus that wasn't there before.

If you were a grain broker, how would you respond if you visited a wheat mill and found at the end of the line they were topping off each bag with insect parts and mouse dropping to bring them up to the legal maximum?

Just curious here. I didn't know this was common practice. Do the mills do this with direct trade coffees?
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Re: Broker, Importer, ...?

Postby nick on Fri Sep 26, 2008 8:22 am

Yeah, it is common practice. You have to remember, not all coffee out there is top specialty-grade (i.e., 80+ zero defects), and you can't really have standards of # of defect per 300g sample (for example) unless you sort everything out and then sort it back in measured amounts.

I've heard defect specs that made me go: :shock:.

It begs the question: if the entire market gets a whole lot more specialty (and there's definitely a long way to go), what are producers gonna do with all the defect?

Edwin and others: Do mills end up selling some, most, or all of their defect coffees? If there's "left over," does it get thrown out with pulp? Does it end up as domestic-consumption coffees? I'm assuming the answer depends a lot on what country you're in... but I'd been wondering ever since my first farm and mill visit.
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Re: Broker, Importer, ...?

Postby Sean Starke on Fri Sep 26, 2008 9:47 am

Marshall wrote:
Sean Starke wrote:What's to object, Marshall?

Adding detritus that wasn't there before.

If you were a grain broker, how would you respond if you visited a wheat mill and found at the end of the line they were topping off each bag with insect parts and mouse dropping to bring them up to the legal maximum?

Just curious here. I didn't know this was common practice. Do the mills do this with direct trade coffees?


But that's the point: it was there before. No one is adding non-coffee defects in to coffee (well, I'm sure there are people who do but that's not what I'm talking about); they are simply adding coffee back that was cleaned out before. No coffee arrives at the mill without defects (well, certainly no coffee you can get a full container of). It goes in the electronic sorters and screeners or on the belt before the hand-sorters on the masthead and the defects that are naturally there are taken out; some coffees have more and some have fewer, just like some lots will have a slightly greater percentage of larger sized beans than others. It certainly varies from farm to farm and area to area, and also year to year. It's screened/cleaned and brought into rough compliance with the contract specs. If the coffee is naturally clean than they may in fact add some of the defects back in; it's a completely different situation from adding non-coffee items to it. If someone was adding mouse droppings or corn to my coffee, yeah I'd be ticked. But adding back in coffee they had cleaned out? No problem.

It's a very common practice but not on specialty-grade coffees, as there simply isn't the defect tolerance to allow it.
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Re: Broker, Importer, ...?

Postby Sean Starke on Fri Sep 26, 2008 9:54 am

Nick, whatever they can sell goes into the internal consumption market.

It begs the question: if the entire market gets a whole lot more specialty (and there's definitely a long way to go), what are producers gonna do with all the defect?


A point I've been making for many years. If the producers can not find a market for the defects that are cleaned out and have to write off that poundage it raises the price of the nice stuff even more. So don't disparage people who are drinking lesser quality than you, as they are subsidizing your cup.
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