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80. Reinvestment at origin, revisited

Last week, I shared a reflection on a CRS partner organization that made a commercial decision based (at least in part) on social criteria: it offered all its new coffee for 2010-2011 to Sustainable Harvest during an event the importer hosted on food security, and asked it to offer some to Green Mountain, which underwrote the event.  That experience suggests that “soft” investments in social issues at origin can yield “hard” commercial returns.  It also seems to validate concerns I have heard in recent months about the ways that social development funding might influence commercial decisions.  Did Sustainable Harvest and Green Mountain get access to good coffee because they invested in Food Security Solutions?  I think so.  Is it unfair?  I am not so sure.

A post here in May on the ways coffee companies reinvest at origin generated a very good discussion around this question.  In comments posted at that time, and offline discussions I have had since then, roasters and others seem to toe a delicate line.  They celebrate reinvestment in social development while sounding a cautionary note about the ways that industry funding for social projects might affect the commercial decisions of smallholder farmer organizations.  More concretely, small companies wonder whether they may find it harder to access distinctive coffees if larger, deeper-pocketed companies win the loyalty of farmers with social development funding.  I understand their concern.  I am not sure, however, that this is always and everywhere unfair.  When farmer organizations are able to include a roaster’s social investment agenda as one criterion among many in their commercial decision-making, I think we are making progress toward greater sustainability in the coffee trade.

Commercial negotiations tend to revolve – tediously – around the issues of price, quality and volume.  But even when these negotiations end favorably for farmers, coffee sales rarely meet all the needs of smallholder farm families, which remain vulnerable to shocks of all kinds: market volatility, natural disasters, crop failures, family illness, climate change, etc.  As a result, farmer organizations work every harvest to put upward pressure on prices to increase their resiliency to such shocks.  When roasters or importers invest to address the non-coffee needs of the farmers in their chains, they are finding creative ways to try to respond to the urgent needs of farmers without ceding to that upward pressure on price.

Certainly, there is a scale issue at play here.  Larger companies that achieve economies of scale and earn outsize profits have more to spend at origin than smaller ones that generate narrow margins over lower volumes.  But smaller roasters enjoy certain inherent advantages in a market where nimble sourcing, small-batch roasting and distinctive branding go a long way, and where small can be beautiful indeed.  And in the end, there is nothing stopping smaller actors from adding social investments to their business models.  It seems to me only natural – and fair – that farmers might choose to reward companies that do so.

As competition for great coffees intensifies in today’s seller’s market, social investment may assume increased commercial importance.

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