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404. “Meaningful economic benefit”

Tracy Ging, Director of Sustainability at S&D Coffee, has contributed an article to The Producer Issue of the SCAA Chronicle titled “Sustainable Coffee and Meaningful Economic Benefit.”   It seems to be almost an editorial afterthought, appearing near the very end of the issue and amounting to barely a full page of text.  Bu the author packs a lot into that lone page.  I will begin to unpack it here.

Drilling Down

What gets lost in the macro-view: livelihood challenges, soil degradation, water strain, land use pressures, and rust disease.

Farmer behavior will go a long way in determining the possibility frontier for specialty coffee.  This article unlocks so much insight precisely because it drills down to the farm level to explore and explain some of the factors that drive farmer behavior.

There are acute risks to the coffee trade lying below what Tracy calls the “macro-view.”  But there are also enormous opportunities lurking there: increased quality, improved traceability, direct trading relationships, terroir and origin.  Market-based actors who want to seize these opportunities would be well-served by a better understanding of the farm-level dynamics that enable or inhibit them.

Opportunity Cost

It is not always in the farmer’s best interest to do more on the farm.

A farmer may stay in coffee regardless of market conditions, riding the highs and lows as he always has. However, it is unlikely that farmer will stay focused on coffee.

Tracy reminds readers who may be tempted to think otherwise that “coffee is not the center of the universe.”  This is especially true for smallholders who are structurally disadvantaged and beset on all sides by the kinds of threats she identifies.

We are acutely aware of this reality, but we are an international development agency working in the coffeelands to help smallholder farm families earn as much income as they can while conserving the natural resources they need to sustain that income over time.  The best strategies to achieve these outcomes may or may not involve coffee.  In fact, in some areas of Central America we are working to help families hard-hit by coffee leaf rust (CLR) to diversify their farming systems and rebalance their sources of income and food.  This will almost certainly mean less reliance on coffee.  And just as certainly mean better livelihood outcomes for farmers and their families.

It is uncommon but vitally important for coffee roasters and other market-based actors to understand this reality and move to embrace what Tracy calls a “broader, more inclusive perspective” on the coffeelands.  A perspective that may be more open to the idea that coffee will drop down on a farmer’s list of priorities or lose ground, literally, to other land uses.  At the heart of this perspective is the idea of opportunity cost.

The opportunity cost of coffee is reflected by the difference between what a grower can earn by farming coffee and what she might make from other economic activities.

In Ecuador, where I live, the minimum wage for agricultural labor is $15 a day.  In the poorest areas where labor is abundant, the going rate may be closer to $10, but in the vast swaths of the countryside that are emptying out, labor is scarce and $15 a day is the going rate.  Employment at that level is not available year-round, but when it is it will compete with a coffee farming for a grower’s time and attention.  And when diseases like CLR drive down production, or when the futures market hangs out in the $1/lb. neighborhood, growers may not abandon their coffee, but they will almost certainly neglect it.  This kind of on-again, off-again approach to coffee may make economic sense for growers, but at a time when the marketplace is demanding higher quality and seeking year-on-year trading relationships rooted in mutual commitment to quality, it can be a source of frustration for buyers.

The opportunity cost concept manifests itself in more nuanced ways, as well.  The area where I work in Colombia is characterized by a much higher degree of specialization in coffee.   To borrow from Tracy’s language, Nariño is an area where many coffee-growing households do believe coffee is the center of the universe.  And where few have (licit) economic alternatives more attractive than coffee.  In this context, the idea of opportunity cost may be less relevant in the decision about whether or not to focus on coffee (farmers will almost certainly do that) than on which coffee variety to plant.  Nariño has not been immune to the CLR epidemic that drove Colombia’s production down steeply between 2008 and 2012.  There and throughout Colombia, the opportunity cost of growing traditional, rust-susceptible varieties like Caturra is high when compared to resistant hybrids like Castillo.  The market may lament the disappearance of the traditional varieties that make Colombian coffee so extraordinary, but the decision to plant Castillo made on hundreds of thousands of farms across the country in recent years reflects what classic microeconomics would call “utility-maximizing” behavior.

Incentives

Currently there are two main models for making coffee more economically compelling: pay more or do more.

There also seems to be a strong narrative in our industry that quality, and subequently quality incentives, are the paths toward economic sustainability.  Is that necessarily true?

If, as Tracy (and I) suggest, coffee growers do make “economically rational” decisions, then it stands to reason that coffee buyers can change the logic by which those decisions are made.  By altering the factors in the equation.  And aligning interests more closely along the chain.

The dominant approaches to changing a farmer’s calculations have been, as Tracy suggests, to pay more or do more.

Doing more has proven mightily complicated for most market-based actors.  Doing development work in the coffeelands requires the kind of relationships, resources, patience, skills and/or depth-of-commitment that few in the marketplace possess.  I could point to examples from microroasters to megaroasters of effective examples of doing more, but these remain the exception rather than the rule.  Perhaps more importantly, when doing more doesn’t lead directly to improved income at the farm level, it is not effectively altering the incentive structure that led growers to focus less on coffee to begin with.

The more common approach by far is paying more, mostly in the form of price incentives for cup quality.  As Tracy suggests, despite the ascendance of quality-first direct trade, the verdict on that approach is still out.

Farmer Voice

We have to understand what “meaningful economic benefit” means, and we need the farmer perspective for that…Only a farmer can really define what’s “meaningful” to them.

Ever notice how the most radical statements also seem to be the most self-evident?

7 Comments

  • randy wirth says:

    In the book Brewing Justice, it is apparent that Organic and Fair Trade premiums make a difference. This is a scalable model that does not leave the farmer at the mercy of an individual roaster far removed from his operation save an occassional visit. When I say “at the mercy”, I speak from the experience of being a small vineyard owner who made the mistake of “partnering” with a winemaker who wanted a certain variety of grapes planted and who wanted to make the pruning decisions and pick the harvest window as a part of the “deal”. This is exactly what some of us are expecting with our direct trade projects. Unfortunately, our winemaker decided just before harvest that he would not take our grapes, without explanation and without notice. Because we had given this winemaker exclusivity, we had not market and lost the entire crop. We made this significant investment based on a “long term commitment” with this winemaker.

    With certifications, the farmer at least has access to a larger market should his primary relationship go south. The question for me is, are the certification premiums adequate. If not, raise them as have been done for both Fair Trade and Organic. This does not exclude the roaster from adding in additional quality incentives as we have done for some projects. While the price to the farmer is of key importance, so are sustainable farming practices and to some of us the ecosystem the farm operates in. Are we suggesting that sustainability is only a price point issue for the roaster/consumer?

    • Lauren says:

      Hi Randy,

      I think it’s possible to suggest that sustainability is only a price point issue and for that to be a positive thing. In the Burundian coffee context in which I work, we labour hard to produce the best quality coffee we can and sell it for top dollar to third wave roasters. Our roasters are very interested in development, but first and foremost their core business is sourcing high quality coffee. For us, quality is everything. We are exploring however the ways in which we can use this third wave trade dynamic and leverage it to focus on the farmer’s entire agro-ecosystem and not just coffee (for the reasons outlined in Tracy’s article and Michael’s summary as well as the rest of this blog)…. but this is a tough line to walk as our core business is sourcing quality coffee, not improving food security – even though we recognise this as one of the key determinants of our core business.

      Being as landlocked as we are in Burundi and with Burundi’s lack of infrastructure, we have found that most of the certification premiums are simply not enough to cover the cost of production as they still use the C price as their base price.

      This is a great conversation, let’s keep it going.

  • Lauren says:

    Also, I just wanted to share that the average day labour wage for agricultural work in Burundi is just under $1. This is another reason why it’s important to strengthen non-financial revenue streams – especially those related to subsistence crops.

  • Chris London says:

    Lauren wrote “I think it’s possible to suggest that sustainability is only a price point issue and for that to be a positive thing.” I think this this is a common idea but that it is also absolutely wrong. I go into why with a fair amount of detail in this article (https://www.academia.edu/2376232/Coffee_Certification_and_the_Incorrigibility_of_Capitalism). The short story is that if we have price as the determining factor then we surrender what is essentially a qualitative decision (the kinds of social and environmental relations we want to sustain) to an arbitrary, narrow and often irrational quantitative indicator. Basically, if you make market price the central issue then rather than make the market serve sustainability, etc. instead we make us serve the market (and the dominant interests within that market) and sustainability becomes only a circumstantial, and easily reversed, side effect. But I agree 100% with Lauren’s comment that “it’s important to strengthen non-financial revenue streams – especially those related to subsistence crops.” It’s precisely this kind of locally specific thinking that we need that a focus on price cannot provide.

    As an example, from what a student has told me, apparently the shade coffee projects in the El Triunfo Biosphere Preserve have been quite effective at delivering a better price to growers, with the consequence that they have expanded production and have subverted the sustainability goals that the price premium was premised on. I only just found out about this yesterday so haven’t had a chance to follow up on it, but if so it provides clear evidence that sustainability cannot be a price point issue. Rather, as Michael’s post does a great job of illustrating, it can only be done on a case by case basis trying to establish relationships that work, price and cash income from coffee being only one, and perhaps a quite subordinate, factor.

    • Lauren says:

      Hi Chris,

      Thanks for sharing your article and your thoughts. I didn’t express my own thoughts fully unfortunately and left out important details. For us, sustainability is a price point issue exactly because it is totally context depend but also most importantly as far as is possible we try to remove the C price from our direct trade contracts and replace it with the following question: What does it cost for ‘us’ to be profitable ? The ‘us’ refers to not only ourselves as producers but our farmers and our roasters too.

      This is our attempt at making prices less arbitrary and sustainability make more sense in our context.

      • Michael Sheridan says:

        Hello Lauren and Chris and thanks to both for your comments here.

        I look forward to reading your piece, Chris (provocative title!) and probably shouldn’t respond before doing so, but heading soon to Seattle and won’t get to it before then.

        If you haven’t already, I would encourage you both to have a look at today’s conversation with folks from Counter Culture (406. Counter Culture’s new approach to quality incentives). Price remains at center stage, but there isn’t necessarily the upward price pressure that is a constant source of tension with roasters who face a limited market for the $4 cup/$20 pound of coffee. Counter Culture introduces what is in the end a modest shift in how it pays growers, with momentous consequences. As the great Katie Carguilo put it so well, creating incentives for quality-focused practices, not rewarding cup quality; paying growers on the front end to implement the practices it believes will lead to quality, not rewarding the few who are still alive after running the full gauntlet. It fundamentally shifts the risk onto the roaster. It doesn’t resolve anything, but it sure seems like it will make the quality conversation a whole lot easier.

        I should point out that while Counter Culture is tinkering with its payments approach it also incorporates the non-financial ecological factors you raise, Chris, into its buying decisions: over 90% organic certified coffees, environmental scorecard with graduated requirements, etc. But that’s a post and a discussion for another day.

        Michael

        • Chris London says:

          Hi Michael, I’ve been mulling that post and have some thoughts but no time at the moment to write them.

          But on another note, a couple of days ago I sent you an email re: SCAA. I don’t know if you check the email address you have for this blog so I thought I’d mention it.

          chris

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