What is Direct Trade?

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What is Direct Trade?

Postby geoff watts on Mon Feb 26, 2007 4:07 pm

hola

It is always fascinating to witness the evolution of an idea, and even more intriguing to see where it can go once it enters the public arena. Most of us know the school game wherein a group of people sit in a circle and one person whispers a tale in the ear of the next, who then passes the story along to his neighbor until it makes it all the way back to the start. By the time the story has been transmitted back to the beginning there have been changes"oftentimes dramatic, and once in a while the final telling has mutated to a point where it has very little in common with the original. In the cosmos of ideas, this phenomenon can be a great thing. Wikipedia and the Internet have proven (or are intent on proving) that a simple sentence can become an essay almost overnight.
There is a real danger, however, that through misinterpretation or indiscriminate application a word or an idea can become diluted and begin to lose significance. Old sensory descriptors like 'rich' carry no currency at all among today's cuppers. The imprinting of 'gourmet' or 'specialty' on a package means even less, and has actually done a 180"it has become a good indicator for low quality coffee dressed up in a tux...
'Sustainable' and 'Shade-Grown' are headed the same direction"without clear definition, these can mean just about anything. Although some organizations have detailed criteria for pronouncing a coffee shade grown, others are happy to call a few banana trees and an Inga or two nice and shady. Clarity and detail are our common shields against misuse of language that can render even the most powerful terms impotent.
It is in this spirit that I am compelled to bring some specificity to the term we put into action last April as a means of describing our approach and methodology to green coffee sourcing. The words 'Direct Trade' have been popping up all over the place lately in various contexts, usually without any clear definition or reference to actual criteria. As we know, it is not the image of Ben Franklin that has intrinsic value, but rather the gold in Fort Knox that gives it power. The $100 bill seems valuable, but as anyone traveling in Africa has likely learned the hard way, it doesn't carry any weight in many countries unless it features a big head and was printed after 2001. Might as well have Mickey Mouse's picture on there.
So here it is, in a nutshell:

1. Regular and Personal contact with growers, at the farms. We aim for 3 visits per season (one before, one during, and one after harvest), but our DT model guarantees at least one trip to the farm each year. I would make 3 trips requisite criteria, but I did the math on that and without a clone I cannot promise to get it done. Last year I went separate times to Nicaragua because we had so much to accomplish there, but that took away one planned trip to Colombia. So for now it is minimum one trip, often more. Perhaps we'll slide it up to two in the near future. Either way, the point is this"without yearly trips to spend time with specific farmers and their farms, no real relationship can develop. Email doesn't cut it, and a farmer making a tour of the US doesn't count. We believe that it is of vital importance to be on the farm, and to be willing to make the personal investment of time, energy, and money to travel and visit farmers in their homes. It is only through being there and spending time that we can feel confident about the quality of working conditions and the preservation of the environment. If we are to make any claim on our packaging, I need to see proof that our claim is accurate with my own eyes, over and over again. Knowing that the farmers we claim to be helping are actually benefiting is vital, and I'm not willing to accept anyone's word on this. Let me hear it straight from the mouth of the grower. If he or she tells me things are working, I will believe them.
2. Prices $$$ .cash money. We've been repeating a mantra lately that a high-quality (say 86 cup points or higher) should sell for no less than $2.00 per lb. ex-warehouse. Less than that, and the costs of producing real quality are not sufficiently covered to make it an attractive long-term plan for producers. Our Direct Trade model guarantees a minimum verifiable price to the grower or local cooperative of at least $1.50, scaling up to well above $3.00. It is not sufficient in my opinion to track price to the port of export, or even to the Central/exporting coop. It must be tracked to the end, to the pocket of the individual farmer. This bring us to number three…
3. Full disclosure and transparency in the money trail. Direct Trade requires that we can track delivery of payment to the individual farmer, and are fully aware of how costs are being valuated. We use a specific contract addendum called the Transparency contract in order to understand cost and profit margin for the farmer, the exporter, and the importer. The contract itself specifies payment terms and was designed (largely by our Latin American operations guru KC) to ensure full traceability and be a tool to advocate and help enforce farmer rights, even within organizations.
4. Environmental impact. DT criteria states that the growers must be committed to healthy environmental practices. What does this mean? Having worked in so many countries and so many contexts, the lesson I've taken away is that a rigid or dogmatic approach to trying to evaluate 'environmental sustainability' is not the best working option. Instead, we focus on what we can see and what makes sense. How much water is being used in the processing of coffee, and where does this water come from? What is done with the contaminated water after de-pulping, transport, and fermentation? What sort of fuel sources are being used? These are the most critical questions I seek to answer, and DT environmental component as it exists today means that water used in processing must not be allowed to pollute the soil or ecosystems around the farm. Different farmers have different solutions to this"some switch to aquapulping to reduce water use, some treat water with Cal to neutralize ph, some build sediment tanks, etc. There are many ways to tackle any problem, but the keys here are awareness and active pursuit of sound ways to produce great coffee without leaving a detrimental footprint.
5. Social impact. The premise is that everyone who touches the coffee along the way to us must benefit measurably from its production. Clearly the measurables differ greatly depending on context take Flor Azul, for example, which is produced by a group of less than forty growers who farm, on average, about 5 hectares. Most of the labor is done by family members with occasional hired help from others in the community. Compare that to Los Inmortales from El Salvador which is coming from several medium sized (roughly 30-90 hectares), privately owned farms that each employ up to 150 people during the season. Different scenarios, different sets of measurables. On the big farms we look to see what workers receive for picking, when and how they are paid, what the living facilities look like on the farm, what sort of social service (health care/day care/schooling) is provided, etc. On tiny farms that don't employ labor we look more at access to clean water, community infrastructure, food security, and issues along those lines which require a much more bird's eye approach to solving.

Direct Tradetm is a name for a philosophy and a buying model that has been in active evolution for the last 6 years. We formalized it last April, and laid out a set of criteria that would give the phrase some backbone. It stands for investment in quality, for the development of very real and personal relationships with the farmers and millers who supply us coffee, and for taking responsibility for the impact of our purchasing to ensure that all the coffee we sell under this name came from situations in harmony with our social and environmental ethics. It also means reward for the farmer"high prices for incredible coffees,fully traceable to the farmgate. There is some more information here:
Do I as a buyer want to try to enforce or protect ownership of the phrase? Not really. My agenda as a coffee buyer is to be both a farmer advocate and a champion of that notion that real sensory quality IS the heartbeat of the specialty coffee movement. We as an industry need to be steadfast in truly rewarding cup quality when we find it and actively encouraging its production by creating sound buying mechanisms that are viable in the long-term and give CLEAR and legislated incentive to farmers who believe that quality is the answer. Farmers need to know that investment in quality will pay off. Consumers need to know what quality means and what it costs. Our responsibility as roasters is to teach consumers about coffee and to support farmers who have committed to quality and can be models for their peers. As purchasers, it is our mission to help create more specialty coffee"to spend time, money, and energy on development at origin in order to make sure coffee farmers who want to succeed as Specialty producers have all the tools they need to create amazing coffees. Process control, pre-financing, quality evaluation and feedback, cupping labs all of this stuff is a necessary part of the puzzle.
The reason I've written here is to set the record straight about what Direct Trade means, and encourage consumers to look beyond the words. There are many ways that roasting companies go about sourcing and purchasing their coffees, and many people doing good work in the industry. Some I know well and have much respect for, others I have yet to encounter. The Direct Trade model is one we've popularized but we can only control how we make purchases, not anyone else so the next time you see the advertisement of a Direct Trade coffee, my advice is to determine what the seller really means by his/her use of the phrase. What are the criteria? Does it all add up, and is there real development work going on? This is an appeal for Truth in Advertising, and for our industry to really be vigilant in trying to endorse good works or shine a revealing light on garbage in a pretty dress.

Let all those who support truly extraordinary coffees be candid in defining what we mean when we talk about sustainability, relationships, and cup quality. Let our actions reflect and validate our words. And let us never forget the power that words can carry or can lose"we must be active in our effort to preserve and protect the meanings of the terms we've come to cherish, those designed to reflect and represent our ideals and goals. If not, we must abandon them. A charged term that has lost its meaning or, worse yet, has come to represent something that is in opposition to its original intent"those can be dangerous. It is important to know that DT is a system, and it takes a lot of effort to implement. It takes time and commitment. It takes investment in quality on both sides of the equator to make it work. I really hope that over time many roasters adopt the principles of Direct Trade as their own and implement systems to make it work as it can and should. That would be a huge leap forward for our industry. This is why I have written today--the words are beginning to be applied out of context, and I just want issue a reminder that it takes a lot of input to make a system like this actually effective and viable.
Another thing to remember is that Direct Trade is not, and cannot be, static. The shape it has taken and the criteria that form its core are a culmination of more than 6 years of intensive origin work, but they will and must change for the better. There is still a great amount of work to be done to make Specialty coffee a sustainable and attractive business for producers, and we are all still learning. I will consider it a massive failure on my part if in 5 years the Intelli Direct Trade model has not improved in both effectiveness and detail. I'm sure that others will develop parallel models wiith new ideas that perhaps I can borrow from in the future to keep pushing forward. You can look and see what DT means to me as of this moment in time, and let it be a benchmark to measure its maturation and growth in the future: http://www.intelligentsiacoffee.com/origin/directtrade



Onwards,

geoff
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Re: What is Direct Trade?

Postby Mike Gregory on Mon Feb 26, 2007 8:31 pm

Thanks Geoff. It's great to hear from you what Intelligentsia's marketing dept. has only fed bite-sized pieces to those who take the initiative to ask. Our customers here in Seattle are very curious about the inner workings of Direct Trade, and as such I would like your permission to distribute your above post in print at Trabant and/or on our website.

geoff watts wrote:3. Full disclosure and transparency in the money trail. Direct Trade requires that we can track delivery of payment to the individual farmer, and are fully aware of how costs are being valuated. We use a specific contract addendum called the Transparency contract in order to understand cost and profit margin for the farmer, the exporter, and the importer. The contract itself specifies payment terms and was designed (largely by our Latin American operations guru KC) to ensure full traceability and be a tool to advocate and help enforce farmer rights, even within organizations.


I'd love to see one of these!
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Postby rob mcdonough on Mon Feb 26, 2007 11:56 pm

Those are truly inspiring words. I am not disagreeing with your opinion of what should happen with the advancement of relationships between origin and the roasting/consumption sectors. However, when do you foresee DT becoming ubiquitous within this industry? Would you like to see DT coffee replace CoE bought coffees? Are companies committed to paying the prices that top CoE coffees fetch? An example is the Guatemala Finca El Injerto Bourbon Reserva which Stumptown had been buying DT, then paid much higher prices for the CoE lot. Should Stumptown feel responsible for paying that high of a price for DT bourbon, but non-CoE,? I see some issues with the ability of a roasting company to monopolize a farm through DT, increase the cup quality, but in the process keep out competing companies/roasters like the Mikatajuku group et al.

I guess the main question I would like addressed is: Does the DT model allow for the competition between consumption companies that could/should increase green prices and cup quality?


rob "post shift, multiple beers in"
Last edited by rob mcdonough on Tue Feb 27, 2007 11:04 am, edited 1 time in total.
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yes

Postby geoff watts on Tue Feb 27, 2007 9:39 am

rob wrote: Would you like to see DT coffee replace CoE bought coffees? Are companies committed to paying the prices that top CoE coffees fetch? An example is the Colombia Finca El Injerto Bourbon Reserva which Stumptown had been buying DT, then paid much higher prices for the CoE lot. Should Stumptown feel responsible for paying that high of a price for DT bourbon, but non-CoE,? I see some issues with the ability of a roasting company to monopolize a farm through DT, increase the cup quality, but in the process keep out competing companies/roasters like the Mikatajuku group et al.

I guess the main question I would like addressed is: Does the DT model allow for the competition between consumption companies that could/should increase green prices and cup quality?


Hi Rob,

I really think that CoE is an independent subject, its own microcosm in the world of quality coffee. Competitions and auctions are a vital piece of the new direction in specialty"they help spotlight incredible coffees that might have otherwise gone unnoticed, they introduce new tastes and regions, and they are a platform to celebrate the very types of coffees that lovers of the drink dream about. But I don't think most people, including the founders, would see CoE auction primarily as a sourcing mechanism. The amount of coffee that makes it to the auctions is relatively small, and is legislated to be that way. Many farmers I've talked with think long and hard about the size of the lot they submit, looking at historical auction prices and gauging 'thresholds'for example, a 20 bag lot may be 200% likelier to fetch a price over $6.00 as compared to a 70 bag lot of the same coffee. These are not accurate estimations, just an example"but you get the idea, it's a numbers game at some point, and the larger the lot size the harder it is to reach the coveted $10/lb + level. And there are reasons for that; most of us as roasters can find a way to sell 2,4, or perhaps 10 bags of a $25.00 green coffee within the 3-5 month window before the coffee starts to lose some of the nuance that made it so spectacular in the first place. But few could manage that with 100 bags. What if Stumptown paid twenty-five bucks a pound for all its green?
The Injerto you mention is a good example"Stumpy has been buying from them for years, have a good relationship, and receive great coffees every year. It's a great thing Arturo is a visionary farmer who takes excellent care producing coffees, and Stumptown is a quality-focused roaster that pays good $$ for the coffee and takes great care in roasting, preparing, and promoting them. Everybody wins. CoE takes place, Injerto takes top prize, and Duane organizes a group of like-minded roasters who celebrate the feat by paying 25 bones for 16 bags. Injerto becomes even more well known in the consuming market, and smiles abound. A major success story, exactly as we would all have it written. But it must be remembered that these 16 bags are a microscopic fraction of what Injerto produces yearly, and Sr. Aguirre is not counting on CoE income to make or break his business. He counts on the type of business that Duane is doing with him outside of CoE in answer to your question about what responsibility Stumptown should feel, well, that's not my place to answer, but I would say that you guys are supporting Injerto quite nobly by purchasing multiple containers every year at a good price. Whether you bought any of the CoE lot and how many bags you committed to in the group setting are not really that relevant to the issue of your support for the farm. And while Arturo certainly had occasion to crack a bottle of the finest Ron Zacapa Centenario to celebrate the windfall in the auction, I would also guess that he is even more happy that he has found a roaster who understands the costs of quality and is willing to pay excellent prices for great coffees, in significant volume, and in the long term. That, methinks, is every farmer's hope.
And in the end, that is one of CoE's greatest accomplishments. Many of the farmers who have done well in the competition have gone on to form lasting relationships with quality-minded roasting companies, and in doing so have escaped the commodity game. They can sell their coffees at prices they are thrilled about, and continue to invest in their farms knowing that there is a buyer (or buyers) who will support their efforts to keep pushing quality forward.
As far as monopolies are concerned well, for one I question the assumption that there is an extremely finite amount of top-tier, 88+ coffee out there. Experience has indicated otherwise"there is a massive, mind-numbing amount of POTENTIALLY great coffee that never reaches its real peak in taste, for many reasons"cherries that are not ripe enough, inadequate or poorly maintained processing equipment, lack of sufficient input during cultivation, indiscriminate mixing or bulking of lots, non-uniform drying, wrong packaging, shipping delays the list is long, but there is a silver bullet of sorts. Many of these problems are very avoidable if the prices for green are high enough to cover additional costs of fixing them, and if there is on-going education, tech support, and the input of human energy to solve quality issues at the farm level.
Again, that's where the whole idea of DT comes from"its essentially a pact or partnership between roaster and farmer who believe that by working together, committing to one another, and relentlessly pursuing quality as the ticket to success they will both come out ahead. It's a basic business model that elevates coffee to a place outside the futures market, takes some of the gambling out of the whole gig. It's development rather than discovery"take the premise that X coffee has (based on the fact of promising environmental conditions and committed individuals) a potential to be great if only the quality-destroying factors are controlled to the best of our abilities, and the goal is to move that coffee which historically has been 'just ok� up to a new level where it is truly great. If you believe that premise, there is a very large supply of great coffee awaiting the investment of roaster and farmer to make it so.
Will there be roaster competition over the finest coffees in the future? I'm sure there will be. But I hope it never becomes cutthroat, with roasters clamoring to out bid each other for the entitlement to a farm's crop. At that point the decisions rest with the farmer"do you continue to work with those who have proven their commitment and helped you grow, or do you pander to the highest bidder each year? Every farmer or business must make that decision for themselves. I've really learned the value of building strong friendships with producers and sticking with them through thick and thin, realizing that we make a good team. I'm not sure I fully understood that five years ago, but today I see it as completely essential. In any case, roaster collaboration can be a very good thing, especially in the case of non-competing markets. If Mikatajuku wanted to join you as a buyer of Injerto it would probably work out very well. There's lots of great coffee up there in that HueHue valley, and from what I've seen Arturo has the capacity to produce many containers of tasty coffee.
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Postby Rich Westerfield on Tue Feb 27, 2007 10:23 am

Seems to me this topic needs to be in a future issue of Barista very soon - or better yet, some site where we can all link to the full text of Geoff's (and Duane's or whomever's) thoughts on relationship coffee vs. CoE and auctions from both buyer & seller perspective.

Rob asked good questions, Geoff gave great answers. The article virtually writes itself. I doubt 1% of baristas, let alone .001% of the coffee drinking public are aware of thinking behind this level of relationship coffee. But they should be.

Heck, this is Business Week or Inc.- level content.
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Postby fleck on Tue Feb 27, 2007 10:58 am

An example is the Colombia Finca El Injerto Bourbon Reserva which Stumptown had been buying DT, then paid much higher prices for the CoE lot. Should Stumptown feel responsible for paying that high of a price for DT bourbon, but non-CoE,?

Geoff said more great things than I ever could in response to this, but I would like to add a couple of others.

First off, I think you've been to enough cuppings to realize that Finca El Injerto is not in Colombia, rather the Huhuetenango region of Guatemala.

Second, as Geoff said, this is a great success story. In the case of El Injerto, we did not use the Cup of Excellence as a tool to find a new farm to build a relationship with. We had an existing relationship and the Cup of Excellence showed us that all of the time and effort the Stumptown has put into El Injerto over the past several years has certainly paid off in quality.

--Stephen
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Postby deCadmus on Tue Feb 27, 2007 11:28 am

PaniniGuy wrote:Seems to me this topic needs to be in a future issue of Barista very soon - or better yet, some site where we can all link to the full text of Geoff's (and Duane's or whomever's) thoughts on relationship coffee vs. CoE and auctions from both buyer & seller perspective.

Rob asked good questions, Geoff gave great answers. The article virtually writes itself. I doubt 1% of baristas, let alone .001% of the coffee drinking public are aware of thinking behind this level of relationship coffee. But they should be.

Heck, this is Business Week or Inc.- level content.


Scooped 'em!

See: Intelligentsia Coffee Gets Direct on bloggle.com.

With my readership (um... both of them) that'll take the concept to new heights. ;)

-deCadmus
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DT + CoE = Ninety Plus, comments from Novo out of Ethiopia

Postby Joseph Brodsky on Tue Feb 27, 2007 2:37 pm

Five months straight in Ethiopia have me reading this with different eyes.

An estimated 10,000 genotypes of coffee still grow wild in Ethiopia's disapearing indigenous coffee forests. Walking among these trees is surreal, and it will make you want to know what each of these distinct seeds could do in a cup when cultivated for quality.

One-hundred-year-old moss and lichen covered coffee trees with girths pushing 10 inches in sections reach through holes in the canopy for the sky or, alternatively, dive to the ground in shade-loving adaptation. Fruit, flower, rest - literally thousands of slightly different life strategies are pursued in every instant by our beloved Coffea Arabica or, more appropriately, Coffea Aethiopica.

Coffea Aethiopica
has competed with itself for hundreds of thousands of years and been forced to diversify. Yet I've been here for five months with the primary task of finding unique coffees that score over 90, and I've only found three.

What's wrong with this picture?

I like to refer to Ethiopia's great potential of aromatic gems as dusty diamonds. If only the dust were so easy to remove as that from a gem pulled from grandma's closet.

Here in Ethiopia, coffee is largely grown organically out of necessity - smallholder farmers can't afford the chemicals or even the funds necessary to expose them to such worldly conventions. This is a densely populated agricultural society that is as diverse as the coffee in Kaffa, where travelling a few kilometers from Chichu Coop in Sidama to Bale Kara Coop in Yirgacheffe sees a complete change in local language and culture. A single family of smallholder farmers might produce enough cherry to yield much less than 10 bags of clean coffee.

The last thing on the smallholder farmer's mind is a special cup prepared in a lab that scores over 90 points. Especially not with small and large scale cherry buyers, millers, Akrabis, coffee exporters, commercial buyers, and, yes, $2 paying high-quality coffee buyers shopping around in the capital city hundreds of kilometers away (not to mention the rest of us tuning in from computers in home offices).

The $2 coffee buyer is not exempt from problem perpetuation. It will take a lot more than $2 to get the dust off of these diamonds. And it will take a team effort and a collective vision that looks beyond our frantic scrambling to put together this year's most stellar green inventory.

$4 gets us much closer.

The three coffees I've cupped over 90 have come to the table from unprecedented investment in quality from the typical bad guys - the coffee exporters who are (often justifiably) seen as abusers of their role as middle-men, with no historical interest as a group in making things more equitable for the small farmer.

These Ninety + coffees have been no accident and these exporters are quite different, having invested huge sums in purchasing and upgrading mills. Nearly double normal prices were paid to farmers and cherry buyers to incentivize them to come with ripe cherries. Instead of the typical blending of bad coffees with good - improperly dried or otherwise slightly faulty coffee was continually removed in quantities of up to 20%. Moisture (and soon sugar content) was continually monitored. Vigilant storage, transportation, and sorting was undertaken. These are enormous costs to incur.

But in the end, I taste diamonds.

If we show the consumer, he/she does too.

I believe an increase of 50 cents is more suited for the cup than for the pound of green coffee. When one does the math, one sees that we can dust off a whole lot of gems with the dollars pumped back into the chain by increased cup price.

So, to conclude, I love the clarity, proximity to the farmer, and adaptability of the Direct Trade model. I also love the willingness that roasters have shown to pay up for coffee they love in auctions. I think if we take a leap forward we'll see that auction prices might be what it takes to sustain truly equitable trade in Ninety + coffees. So instead of calling CoE a relationship builder, I'd call it a price setter, and I call on all of us to pay up for supreme quality when we taste it. Maybe $50 won't work very soon on a large scale, but $4 is certainly foreseeable.


I don't see too many $1.75 bottles on display at my favorite wineseller. How good would the wine be if that is all anyone would pay? There wouldn't be much incentive for visionary and fair-minded winemakers.

In Ethiopia, coffee forests - unread books that threaten to end undiscovered - are being turned into firewood, and even our favorite cultivated coffeelands continue to deliver mishandled coffee.

Discovering and realizing the value of Ethiopia's great coffees is a process in which we all need to contribute, whether while on the ground in the land where bunna was born or writing checks from afar for coffees that dance on our palates.

I look forward to working with all of you.





[/i]
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Postby aaronblanco on Tue Feb 27, 2007 3:37 pm

these are great discussions, points, counterpoints and descriptors, all. thank you for sharing thus far.

a question i have is, seriously, what happens when disaster strikes (and it does!) and the crop this particular year or that, for whatever reason, is not what it normally is? would anyone in their right mind, relationship or not, shell out the $2.50+++ for the coffee if it's just. not. there?

whenever i travel down to the rio grande valley near mexico (which is not all that often, admittedly) i stop in at the same roadside fruit stand for the most amazingly sweet and dark ruby red grapefruits you've ever seen in your life. they "know me there" by now. surely i don't have anything that approaches the kind of comprehensive Direct Trade (TM) "relationship" (TM) with them as we're discussing in this thread; but my point is the same in saying when i stop at the stand and the grapefruits, even in season, just aren't that great, I DON'T BUY.

i guess the question is to those of you who are much further along in this process than little ol' me: how do you account for that?

when i was in guatemala a certain finca manager told me that he sells to a giant multinational buyer who locked in his price for five years. i understand this is rather common for such a buyer as this, but my point was that they have agreed to pay this fellow the same prices year over year for what should be the same coffee, but that all reading this understand most definitely will vary (sometimes wildly) from harvest to harvest in quality and quantity. what of that?

thanks for humoring my devil's advocacy.
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Postby barry on Tue Feb 27, 2007 3:43 pm

aaronblanco wrote:when i was in guatemala a certain finca manager told me that he sells to a giant multinational buyer who locked in his price for five years. i understand this is rather common for such a buyer as this, but my point was that they have agreed to pay this fellow the same prices year over year for what should be the same coffee, but that all reading this understand most definitely will vary (sometimes wildly) from harvest to harvest in quality and quantity. what of that?



i would suspect that in such instances the cup quality is specifically detailed in the contract, and failure to meet that cup would result in an alternative arrangement (including option not to purchase at all).



--barry "how i would do it"
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Postby deCadmus on Tue Feb 27, 2007 4:00 pm

barry wrote:
aaronblanco wrote:when i was in guatemala a certain finca manager told me that he sells to a giant multinational buyer who locked in his price for five years. i understand this is rather common for such a buyer as this, but my point was that they have agreed to pay this fellow the same prices year over year for what should be the same coffee, but that all reading this understand most definitely will vary (sometimes wildly) from harvest to harvest in quality and quantity. what of that?



i would suspect that in such instances the cup quality is specifically detailed in the contract, and failure to meet that cup would result in an alternative arrangement (including option not to purchase at all).

--barry "how i would do it"


Yes, indeedy.

If cup quality meets 80 pts then $N, if 85+ apply bonus $X. If cup quality fails to meet 80 pts then right to purchase at $N-whatever, or to refuse.

-deCadmus

(Not a coffee buyer, but I did stay at a Holiday Inn last nite.)
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Postby Kyle Larson on Tue Feb 27, 2007 9:00 pm

If a consumer can go up to a green coffee buyer and ask them very direct questions about price paid and why that price was paid, get a transparent answer; then, i think the consumer should feel good about the coffee they are purchasing from the roaster.

it should always be the roaster's job to showcase the quality of what the farmer is doing at origin level. this is a win/win or symbiotic relationship, or one could even say a direct relationship; the coffee roasting company knows that they have a source for good coffee directly from harvest/process, and the farmer knows they have a roasting company committed to paying for quality, hence, everyone is sitting pretty with a nice cup of coffee.

there are too many absolutes and nebulous descriptions of buying practices out there. i do not believe in absolutes, because there are so many grey areas(good, bad, and some would even say fair).

transparency is the only solution to these absolutes and grey areas.
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full name: Kyle Larson
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Postby Jaime van Schyndel on Wed Feb 28, 2007 1:56 pm

aaronblanco wrote:a question i have is, seriously, what happens when disaster strikes (and it does!) and the crop this particular year or that, for whatever reason, is not what it normally is? would anyone in their right mind, relationship or not, shell out the $2.50+++ for the coffee if it's just. not. there?


I have been pondering this a bit.

Another thing related is what do you do if you have a relationship and the product then increases substantialy in value? Even if it's simply market demand changesduring harvest...


Do you renegotiate, attempt to take the same agreed upon price, or take the risk that they break your arrangement and just short change you on the delivery? How do you cover yourself for this occassion?
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Postby geoff watts on Wed Feb 28, 2007 1:59 pm

Yeah, Kyle, I could not agree with you more. Transparency, clarity when it comes to definitions...there really is no substitute. Absolutes do not work in coffee. Marketing campaigns that float out there without being tethered to an identifiable, measurable, and traceable system that is explicit in nature and full of detail...well, they probably should not carry much weight with a consumer. That's where definitions are so important...if a roaster advertises his/her relationship with a grower, a consumer should feel comfortable asking--what does this mean to you? When you say relationship, how is that defined?
If a coffee is 'fresh roasted'...what does this mean? 5 days max? 10 days? Is it packed straight out of the cooling tray, or is it degassed? Clearly here the best standard is to print the roast date right on the package, explain the packaging process, and leave it be.
If a coffee is 'sustainably produced'...what does this mean? Is it economically sustainable, even to the point that the farmer's children are excited to follow in their parent's footsteps because it is an attractive career option? Or is the focus more on environmental impact--what is known about the fertilization, fungus and pest control, water use, etc...are these details available? Without at least some clarity of definition the phrase becomes meaningless.
There is already far too much grey area out there, and certainly it makes sense to look to our key institutions for at least some of these answers.
For 'Specialty coffee'--

KC and I talk about this a lot, and he recently emailed me this link : http://www.scaa.org/what_is_specialty_coffee.asp

All this really tells us is that Erna coined the term, but what exactly is an 'ideal climate' or an 'exceptional bean'? What measurables do we use to identify a Specialty coffee?

The answer must be sensory and physical analysis and again, we might look to our institutions "SCAA Tech Standards, Coffee Quality Institute"who define it as 80 points (out of a possible 100) and maximum 5 full defects per 350 grams of unroasted coffee.

This of course doesn't mean it is a great coffee, and for most of us 80 points is not the target, but at the very least we have a place to start. If 100% of the coffee marketed as 'Specialty� in the world at least was able to meet this basic standard, it would seem like a revolution.

Yet again we come back to the burden of proof. The idea of 'Specialty 'certification has floated around for years and always been shot down, which is probably for the best. Certification systems can be so tricky, and very many of them are not worth the paper they are printed on.

So it's Kyle's point once again"the last thing the discerning consumer (should) want or need is another sticker on the packaging promoting the 'specialness� of the coffee. Just give 'em the nuts and bolts"raw cupping scores and sensory evaluation info,perhaps pictures of the green available online and a basketful in the coffee stores. And candid, earnest replies to questions asked. Just the facts, m'aam.

In response to Aaron's question"you are right, the idea is certainly not to pay exceptional amounts of money for mediocre coffees, or to simply create a price, ink a five year deal, and let the coffee flow right in, hoping for the best but accepting whatever shows up like any good fatalist. It is, in my opinion, critical to create a valuation system where the coffee performance (intrinsic quality of the coffee beans) is essential to defining price. Start with a basic floor price that is a 'good'price"meaning well above cost of production so that farmer, miller, and exporter all make a profit. Creating pricing 'tiers'and benchmarks"say the coffee must at least hit 80 with less than 5 defects to even 'qualify and then coffee from 80-84 has a price, 85-88 has a price, 88-92 has a price, etc build premiums into the contract that specifically reward cup quality. Now you've got a system where the farmer is ensured a profit, but can dramatically increase the amount of profit by better controlling the quality of the crop. Sure, there are some things that cannot be controlled. But I would submit that these are minor in comparison to those things that can be, and that a careful and motivated farmer can overcome most environmental obstacles if he has the right tools and clear goals. The key as a buyer is to be active in monitoring and enabling quality--lots of time at the farm to help ensure good results come harvest time, and good strategies to deal with oddities in climate, unreliable electricity, or any such potential hindrance.

This, again, speaks to the idea of partnership for mutual benefit. Farmers want more cash, we want better coffee so why not build a system designed to help us both achieve our goals? And it goes without saying that there must be absolute clarity and transparency throughout the process meaning that cuppings are conducted blind and with scientific rigor, criteria and method is well understood by everyone involved, results are verified through repeat cupping, etc whatever it takes to make everyone comfortable. At some point you also need trust, which is of course the backbone of any good'relationship', in coffee or elsewhere, and which can only be built over time.

Joseph mentioned that $4.00 is, in his opinion, the right price for a 90+ coffee. In many instances I would agree, but do believe this must be considered in context. What is cost of production? If it cost $3.00/ lb to produce, anything less than that is not enough. Where is the coffee from"did it come from a 1/2 hectare farm in Ethiopia with low yield, or from an irrigated 50 hectare farm with mostly Caturra trees?
The whole economic picture of the coffee farm still needs investigation. Over three years, for instance, what percentage of a single farms yield was in the 95-100 range? 90-95? 85-90? What percentage was below 80 points? In the final analysis we need to know what the farmer averaged across all the production, not just the best 5 sacks. What is the average price per pound when even the segundos are weighted in there? What is the net income for the season, after all costs are deducted? How many hectares (assuming an average yield"howabout 15 qq?) are needed to provide sufficient income for a family of 5?

Infrastructure is a huge consideration it takes more dollars to move an '84� cup to a '90� if the systems in place are designed for volume, not specificity. Many of the systems in Africa are designed to throughput big volumes of coffee in a short time even the farms themselves are small, the washing/processing systems tend to be pretty large and centralized. The dry mills are often big, designed for runs of 35,000 lbs+. But on the other hand you have growers in Colombia producing 5 bag lots of 90+ coffee by themselves, depulping in a hand-crank wooden box and fermenting in a plastic sack. Not much added cost, just more careful work and better process control. Costa Rica seems to be learning this lesson"there is a huge push going on with 'micro-mills' designed to handle smaller volumes and afford better selectivity/control, both on the wet and dry side of the processing equation.

Talking about CoE as a price discovery mechanism it sure can be, but again there is the volume consideration and the fact of the competition itself"a number one award winner comes with a massive pedigree"it was cupped more than 5 times (and utilizing more than 100 individual cups) by a jury of 20+ professional cuppers from all over the world. To average a 90 across a panel of 20 is an amazing feat, and by the time it reaches the auction that coffee lot has been put through the ringer"there should not be anything hidden in there! The lot is stored in a bonded warehouse, etc.
The CoE event has slowly begun to drift towards more mainstream consciousness, and the name is starting to carry some currency. So there is even an added value beyond the coffee quality itself you have this powerful endorsement from some of the worlds best tasters and the from most expertly run coffee competition in the world. It does help a bit on the marketing side. There is also scarcity"there are 12-30 CoE lots each year from a handful of producing countries, and perhaps 3 or 4 above 90 pts. If you want it, you are bidding against hundreds of buyers around the world for the right to claim it as yours. It becomes a different story when there 100 lots, or 200! Or if a roaster/buyer helped create that 90 cup by spending $15.000 investing in infrastructure at a farm, or some such thing.


Anyway, I've babbled too much already, but what I'm really meaning to say is exactly what Kyle said earlier in far fewer words"we cannot speak in absolutes in the world of coffee. We must be context specific, analytical, and avoid broad strokes wherever possible so as not to lose detail.

Sorry for the longwindedness, and unfortunately I'm too busy to go back and trim.

g
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Postby Marshall on Wed Feb 28, 2007 9:06 pm

aaronblanco wrote:a question i have is, seriously, what happens when disaster strikes (and it does!) and the crop this particular year or that, for whatever reason, is not what it normally is? would anyone in their right mind, relationship or not, shell out the $2.50+++ for the coffee if it's just. not. there?

whenever i travel down to the rio grande valley near mexico (which is not all that often, admittedly) i stop in at the same roadside fruit stand for the most amazingly sweet and dark ruby red grapefruits you've ever seen in your life. they "know me there" by now. surely i don't have anything that approaches the kind of comprehensive Direct Trade (TM) "relationship" (TM) with them as we're discussing in this thread; but my point is the same in saying when i stop at the stand and the grapefruits, even in season, just aren't that great, I DON'T BUY.


Then it's not a "relationship" in the sense we are using it. You are just a repeat customer. If you walk away when your small farmer supplier is hurting, don't expect any loyalty when the market turns in his favor. Don't expect a contract to give you much protection, either, if you have lost the farmer's trust.

The realities of the legal systems in most producing countries are such that they are too slow or too corrupt to give an importing roaster much protection, and if you persevere to a judgment, your chances of collecting from a farmer are very slim. If you rely on the established coffee arbitration forums, you have the same problem when you try to collect.

So what you are left with is the "relationship." If you provide help when it is needed, chances are good (but not perfect) that it will be remembered.

Marshall
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Postby Joseph Brodsky on Thu Mar 01, 2007 4:24 am

All certifications seem to be responses to historical abuses of people and environment that have their base in coffee as commodity. Fortunately, most people who visit forums like this seem to have a different angle on coffee and employ their own recipes for fairness and environmental responsibility.

Most of our companies are experiencing coffee discovery that would seem to be way beyond the need to defensively certify anything (at least not to eachother). We all seem happy to pay significantly more than what Fair Trade pays, and I think we do this because we can.

We can pay more because a market for high-priced coffee is opening up for us at home. This is really good news for all of us as businesspeople from western cities all the way to the farm.

I think that to fill the fuel tank for any project, every important player needs to see potential benefit. And I think all of us - the retailer, the roaster, the importer, the exporter, and all of the other savvy entrepreneurs from farm to taza - we need to lose our shame about the great opportunity and reward available for us as the world wakes up to unique and special coffee.

We all ask for transparency at origin, but who of us is making our own books publicly available? How much are our baristas paid, our salespeople, our managers, our delivery drivers? Do we use biofuel to deliver our coffee? What was the bar tab at the Addis Hilton last night?

If there were 100 people in the world today who would pay $1000 for an other-worldly coffee experience in a rare cup, that would be $100,000 in revenues in a fictitious (but not unimaginable) room of privileged consumers. How much should the farmer get for the few kg required for this experience? If the farmer owns the one tree in the world that can command $1000/cup, then maybe the merit is his. What about the person who sourced the cup and recognized the flavor? What about UPS who shipped the package?

Each of us might have a different formula for reward and fairness when it comes to abundant demand for rarified/special products.

In the end, each individual buyer of a pound or a cup will decide if the cost is worth the aromatic reward. I'm excited by my own willingness to pay a lot more for coffee I really love, and I'm happy to see all in the industry benefit from the additional dollars in the chain.

I would really like to see retailers differentiate their menus and their price points per cup (some already do this, Novo and select customers included). This will create a willingness to pay roasters more for coffees that sell for more per cup. Then the roaster has more money to sustain his/her business and more to put into origin. Importer and exporter must net a healthy positive from this and some will put more energy into quality for the reward. Millers, farmers, and others also need it (dealing in special quality) to be the best option available. Independent graders and brand storytellers have a place in bringing more specific information about coffees all the way to the consumer. What about processing equipment manufacturers who build equipment to micro-process coffees, record data, etc.? There are many innovators I haven't imagined who will flock to opportunity.

In the end, a lot of people need to be paid to fuel this discovery, and all of us can be. But for everyone to be excited and funded on this journey, I really feel the price point for green and roasted coffee must change dramatically.

None of us should feel guilty about prosperity from these developments. Everyone's growing skills and enthusiasm are what propel us forward.

All of our formulas will be tested for good ethics by our customers and our peers, but, hopefully, we look collectively forward at what will likely be many decades of discovery and expansion of our niche.
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Postby Sean Starke on Thu Mar 01, 2007 7:32 am

aaronblanco wrote:a question i have is, seriously, what happens when disaster strikes (and it does!) and the crop this particular year or that, for whatever reason, is not what it normally is? would anyone in their right mind, relationship or not, shell out the $2.50+++ for the coffee if it's just. not. there?


I think if you have a contractual relationship with them than you should honor that, so long as the coffee meets the FAQ for the crop and contract description. So much of this business is done on a relationship basis that both sides need to work through tough times together, and in most cases they do. Frankly, in my experience a more common problem is the opposite: a 'disaster' as you say strikes in an origin (i.e. a frost in brazil) and my $1.20/lb contract is now worth $3.00 and the shipper defaults. Sometimes it's not 'technically' his fault as the folks he's getting the coffee on may default on him, but that doesn't make the huge losses I take on a few containers any easier to swallow. And no, this is not only confined to commercial-grade transactions; I've had fairtrade shippers default as well.

when i was in guatemala a certain finca manager told me that he sells to a giant multinational buyer who locked in his price for five years. i understand this is rather common for such a buyer as this, but my point was that they have agreed to pay this fellow the same prices year over year for what should be the same coffee, but that all reading this understand most definitely will vary (sometimes wildly) from harvest to harvest in quality and quantity. what of that?


It's a decent deal for the finca, as it helps them with their financial planning to know that they will be selling a certain percentage of their production at the same price for a few years. And for the roaster/importer it gives them the confidence that the coffee will be there for them, which is an important consideration now that there is a lot more competition at origin for the finer coffees.
Sean Starke
Coffee America (USA) Corp.
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Postby Aleco on Sun Mar 04, 2007 6:36 am

I've just made it back to Medan after a week spent in the Sumatran interior and thought I'd weigh in on the discussion. Clearly this issue is at the forefront of the whole movement/revolution that is defining our sector of the industry. Sumatra, a region traditionally put on the backburner by specialty coffee buyers, myself included, will become a great example of this.

I feel like we've taken some baby steps this past week towards better processing mechanics as well as the foundations of relationships. The most intense work is still in front of us but it does feel good to get the ball rolling in a country that desperately needs attention. Geoff's point about not remaining static was as poignant as any other. Improvement is endless so let the committed parties continue to push the ticket with quality and the supply chain in a tranparent manner. We'll be there.
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Postby Jeff Jassmond on Sun Mar 04, 2007 7:50 pm

What is direct trade?

For me,direct trade is talking to a customer who just returned from Australia to find out what my co-worker is going through as he returns from source in Sumatra. It's selling her a medley of coffees, some blends, some SO, and finding out that she still wakes up in the morning thinking it is the middle of the night a week from leaving down under. It's knowing that I will get a chance to sit down with him and discuss the haps in Sumatra and find out first-hand what our company is doing to work with farmers there to improve sustainability, even if he needs some sleep.

Welcome back Aleco, it's good to have you here.

Jeff
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