Making Direct Trade Viable For Small Coffee Producers Round Table Discussion:

Transcription

1 Making Direct Trade Viable For Small Coffee Producers Round Table Discussion: James Kosalos: San Cristobal Coffee Importers Cafes Sustentables de Mexico, S.A. de C.V. David Pohl: Equator Estates Coffee & Teas Jack Davis: Great Northern Roasting Company Miguel Tello Flores: Productores de Cafe Organico del Estado de Nayarit, S.A de C.V. 1

2 Introduction and Premise We believe vital keys to sustainability lie in the ability of the producer to consistently deliver against his contracts and the availability of financing; both of which strongly favor Direct Trade relationships that diminish reliance on commodities pricing and provide incentive to focus quality based premiums on environmental and social causes 2

3 Agenda Coffee Pricing, Direct Trade, And Sustainability Kosalos A Coffee Quality Approach To Direct Trade Kosalos Traceability and process control A Roaster s View: Focus On Long Term Benefits Pohl Mutual interest in quality Targeted investments and micro loans A Roaster s View: Consistent Access To Quality Davis Alternatives for the Socially Conscious Consumer Micro-lots and relationships A View From Origin: Finding Incentives Tello Solidarity and investment in the future Summary Questions And Answers 3 Kosalos

4 There Is A Big Problem In Coffee Land Commodities Trading!!! Lots of coffee are INTERCHANGEABLE by definition These lots (contracts) are sold in a world wide auction Buyer is guaranteed the lowest price based on availability ( Independent of the cost of living in the producing country ) And the seller is guaranteed a price that has no relationship whatsoever with his cost of production Is Commodities Trading Sustainable? Certainly not for thousands of bankrupted small coffee farmers in Mexico and Central America ( Whose farms lie directly beneath the world s greatest migratory bird flyway ) 4

5 Commodities Trading Kills Specialty Coffee Coffee Appears To Have An Intrinsic Value Or Upper Price Level That Buyers Are Reluctant To Breach High Commodities Prices: Reduce ALL premiums Discourage controls and investment on the part of the producer High Commodities Prices Leave Little Incentive To Pay For Certifications Or Improve The Product * Market Outlook for Differentiated Coffees, Sintercafe, 2005, Lawrence Pratt, Director CIMS 5

6 In Search Of Alternatives Certifications? Don t Address The Root Problem Organic, Utz, Rainforest, 4C, Bird Friendly Have associated costs and can attract premiums Generally increase earnings and provide incentives Can have very positive environmental and social effects Subsidies? Don t Address The Root Problem Government price supports, Fair Trade Have associated costs, both direct and indirect Increase income (but not earnings because there is no associated increase in the value of the product) Can build dependency and decrease incentives Direct Trade? A Giant Step In The Right Direction Provides mechanism and incentive to bypass commodities market 6

7 The Direct Trade Concept Coffee Coffee Producer Producer Exporter Exporter Importer Importer Roaster Roaster Consumer Consumer Direct Commercial Relationships Between Producers And Their Customers That Promote: Consistent Quality Non-Commodity Pricing Consistent Quality Is Attractive To Buyer Consistent Price Is Attractive To Seller Price Set With Respect To Product Value QUALITY IS THE COMMON DENOMINATOR 7

8 Current Direct Trade Practices Very Broadly Defined First widely publicized proponents, Intelligentsia, and Counter Culture Coffee, use different criteria and standards Generally Limited To Large Organizations Large Roasters, Buyers Coops, etc. Resources to support multiple trips to Origin Able to accept risk of non-delivery Full container lots Large Producers or Exporters Able to sign and deliver against international contracts Have outside financing TOO OFTEN NOT the buyers willing and able to pay highest prices or the sellers most in need of Direct Trade benefits Not Realizing Full Potential; General Failure To Promote: CRITICAL importance of non-commodities pricing Mechanisms for buying ALL the coffee from producing partners 8

9 Basics: Direct Trade & Consistent Quality Lack Of Process Controls At Source Can Be A Serious Impediment Quality Control Systems Generally Exist In These Entities Retailer Retailer Roaster Roaster Importer Importer Exporter Exporter Dry Dry Mill Mill Wet Wet Mill Mill Farm Farm 9 Quality Control Systems Generally Exist Only In Large Organizations; Small Producers And Small Cooperatives Are Flying Without Instruments

10 Quality Requires Process Controls PRODUCT EVALUATION ( & documentation) PRODUCT SELECTION ( & documentation) CONTINOUS IMPROVEMENT ( & documentation) Process Controls, Quality And Ultimately, Sustainability, Are All Based On: DOCUMENTATION AND TRACEABILITY 10

11 Management Of Samples Is The Key Each Patio Lot Must Be Sampled, The Samples Evaluated, And The Results Documented Patio Lot Evaluation Data Are Needed For: Feedback to the wetmill operator to improve process Feedforward to the dry mill operator to define process Access To A Laboratory Is Essential Professional tools for sample preparation, evaluation, documentation, and the analysis of results We Built A Portable System That Provides Small Producers With The Tools Used By The Big Guys 11

12 PortaCafé Coffee Evaluation System 100% Of The Ability Of A Purpose-Built Fixed Laboratory 12

13 Supports End To End Tracking.. Coffee Is Tracked Through Each Step Of Its Journey From The Farm To The Cup..The Chain Of Custody Farm Farm Farm Farm Wet Mill Dry Mill Barcodes For Export Bags Generated From The PortaCafe Database 13 Roaster Physical Transfer: Barcoded Bags Roaster Warehouse In Consuming Country Roaster Roaster Electronic Transfer: Database Information Internet:

14 Truth In Packaging; Confirmation In Labeling! The Barcode Labels Carry Traceability Data The Sewn-In Tag Stamped With Quality Certificate 14

15 The Collateral Effects Of Full Traceability Documentation Trail Promotes Any Certification Lot Size And Source Are No Longer Problems! Exported containers may contain multiple sub-lots (or blends) each identified with barcodes A blend can be made of ANY qualified coffees: Individual producers or groups of producers Individual COOPS Specific geographic locations Specific cup characteristics The Benefits Of Direct Trade Relationships Are Now Available To Roasters And Producers Of Any Size 15

16 The Synergy Of Quality: Vertical Integration Consistent Quality Builds Loyal Customers Strengthens the producing organization Promotes Direct Trade Process Control Promotes Organization And Solvency! A Well Organized And Solvent Producer Can: Obtain independent financing from Social Lenders Root Capital, Triodos Bank, and others Attract pre-harvest financing from its Direct Trade partners Cooperate with it s Direct Trade partners to promote the product Eco-tourism Strong, Vertically Integrated Organizations Can Manage Prices To Remain Competitive 16

17 Summary Direct Trade Relationships Promote Rational Pricing And Vertical Integration Coffee price related to coffee value Incentive for producers to invest Access to credit Mechanism for distribution of earnings Modern Process Control Is Critical To Quality Full traceability is key to small-lot Direct Trade Roasters And Producers Of All Sizes Can Take Advantage Of Direct Trade Opportunities 17