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393. What we miss when we take care of the business

2014 February 26
by Michael Sheridan

Root Capital’s issue brief on social and environmental due diligence is lousy with insight.  But one phrase in particular jumped off the page for me: the one in which it notes that lenders “typically interact only with the business.”

I think the same can be fairly said of most of the supply chain actors downstream from smallholder coffee enterprises–exporters, importers, roasters.  In my experience, the engagement of these actors tends to be limited both vertically–focused at the top, on cooperative leadership–and horizontally–focused narrowly on core business issues.  It is natural for them to interact principally with the coop manager, board of directors, mill operators and a few farmers they may meet during field visits.  It is practical for them to drill down on issues related to quality, contracts, pricing, operations and the overall financial well-being of the cooperative.  But Root Capital’s experience shows how actors who move, thoughtfully and systematically, to engage beyond upper management and beyond key business issues are rewarded with valuable new insights–insights that can help them identify threats and opportunities that may remain hidden if they “interact only with the business.”

Root Capital has cashed in on its unusual insights on social and environmental issues to avoid bad loans it would have made otherwise and make good loans it would not have made otherwise.

The other example that comes to mind is Green Mountain’s pioneering work on seasonal hunger in the coffeelands.  It pushed beyond management, commissioning household-level surveys; and it pushed beyond bottom-line concerns to explore livelihood issues that seemed to have little relation to business.  The issue that surfaced from this research–hunger–was hardly new, but the understanding of its relevance to smallholder supply chains was new, and it helped put the issue at the center of the industry’s sustainability agenda.

If we are to see all the risks out there and identify all the opportunities for innovation, we need to systematically pursue deeper and broader engagement at origin.  We need to talk to different kinds of people about different kinds of issues to triangulate our view of origin and enrich our understanding.  We need more explorers and mapmakers to push to the frontiers of the coffee trade and report back on what they find.

As usual, Root Capital is leading the way.

2 Responses leave one →
  1. 2014 February 26

    I was privledged to be a part of a trip to Aceh Sumatra this last October to see the results of efforts of Lutheran World Relief and Fair Trade USA along with visiting farmers of three cooperatives that Caffe Ibis Coffee Roasting Company works with. Roots Capital also had representatives at Temu Kupi Sumatra meetings and conference and traveled with us for part of our trip. Actually one of the Roots Capital people was a former Fair Trade USA affiliate who I had worked with through the years. Generally, I was very impressed with the efforts of all three organizations efforts in Indonesia. Talk about “digging down” into the area’s people and farms! Soils samples were taken from Fair Trade Cooperative farms throughout the region and analyzed at the university. Organic compost was designed for each soil type area and farmers trained on how to make it. I attended farm meetings where simple tools were devised for spacing both shade trees and coffee trees along with terracing steep hillsides. I attended democratically run meetings for a new wet mill and patio drying station. All three coops had first rate cupping labs with sample roasters and one even a Q grader on hand. Quality and production improvements were clearly the goal. The most important question I had to farmers in all three coops given the dismal coffee market of the last two years was “Are your children interested in continuing in this occupation?” The answer was a consistent enthusiastic “Yes!”. Yet, the other revealing question I asked was “How much of your coffee is sold under Fair Trade Contract?”. Generally, the answer was in the 30% range. This is shameful! The specialty coffee industry and its supporters need to helping to create much stonger consumer support for Fair Trade. While not a perfect solution, Fair Trade and Organic premiums do make a real difference around the world for small family farmers whether it be coffee, tea, cocoa, sugar, flowers……Thanks in advance for putting up with my rant.

    • 2014 February 26
      Michael Sheridan permalink

      Randy:

      Thank you for your rant!

      We have collaborated closely over the years with both Fair Trade USA and LWR. Like them, we try in our collaborations with the private sector to bring into clearer resolution some of the challenges and opportunities that lie beneath the surface–things folks who don’t dive deeper at origin may miss in the course of doing business. This blog is an extension of that spirit–an effort to share a perspective on the coffee chain that is different from the one that folks in the marketplace may have. For non-profits like ours, it is natural to focus on the pressing development challenges we see in coffee communities, as well as the opportunities for innovations to make the coffee trade more inclusive. This focus may only make sense in the marketplace for companies that are deeply concerned about the welfare of growers in their supply chains, or (more likely) after the body of evidence that Root Capital is building–proof that strong social and environmental performance is aligned with strong financial performance–grows stronger.

      You mention in your comment the low rate of success that members of Fair Trade coops have in selling their coffee into the Fair Trade market. As someone who has worked over the past 10 years to expand participation at both ends of the coffee chain–among consumers in te United States and smallholder growers in Latin America–I couldn’t agree more that increasing Fair Trade consumption can raise smallholder incomes across the coffeelands. And yet, on the basis of that same experience I didn’t believe certifications alone will solve the intractable issues at origin that threaten the future of smallholder livelihoods and their participation in the coffee trade: poverty, hunger, climate change. I think we only address these issues effectively through deeper dives than we have seen in the past and–giving credit to Root Capital for the provocative language–a kind of collaboration that can be described as pathological.

      Michael

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