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47. “Getting to yes” (and beyond price and quality)

I read the bestselling book Getting to Yes for a course in negotation I took during graduate school.  I don’t recall the book’s nuances, but some of its core principles have stuck with me, like moving beyond a party’s position to explore its underlying interests, and inventing new fields of engagement in which win-win solutions are possible when talks fall down around the central points of the negotation.  I find myself now thinking about the book again for the first time in years in the context of some creative approaches to negotiations bewteen farmer organizations and the roasters looking to buy their coffee.

There is so much pressure in negotiations between growers and roasters on the single issue of price, it shouldn’t come as a surprise that when talks break down, it tends to be over inflexibility on price points.  Importers and roasters in the crowded specialty coffee marketplace depend on access to high quality coffee to differentiate themselves from their competitors.  But their financial performance and growth depend on their ability to maintain — or expand — profit margins, exerting downward pressure on price from the market end of the chain.

At origin, coffee is the most important cash crop that most farmers bring to market, and the one in which they have made greatest investments in quality.  Negotiating the sale of the annual harvest is the time they want to see a return on that investment.  Smallholder farmers also cope with a broad range of other risks that can be addressed with access to a bit more cash, all of which puts upward pressure on prices from the farm end of the chain.

At the time of the final negotiations, quality is fixed, since the coffee has already been harvested.  Predictably, then, importers and roasters come to origin every year looking to buy low, and growers do their best to sell high, with prices anchored by some (hopefully shared) sense of the quality of the coffee being discussed.  (The historical record suggests that there can be no question about the relative market power of the two sides of the negotation, but that is another issue for another day.)

There are notable exceptions to this rule, of course.  But mostly, the conversation seems to revolve overwhelmingly around just these two issues — price and quality.  From the market side of the discussion, I can understand why this may be the case, since these are the two most relevant metrics.  But it makes less sense from my perspective in the coffeelands, where there are c0untless threats to the smallholder farmer’s ability to bring lots great coffee to market year-in and year-out.  From my way of thinking, this creates countless ways that buyers could serve the interests of their producer partners by investing in community-based projects without yielding to the perennial upward pressure on price.

So I was very impressed when a farmer organization participating in the CRS CAFE Livelihoods project expanded the terms of its negotiations this year to include issues beyond price and quality, and to good effect.  At SCAA, Michizá was able to secure commitments from two of its leading buyers to invest in renovating aging coffee plantations by offering the investors first right of refusal on the increased production.  Without increasing the price per pound (and therefore the anchor point for future negotiations), these parties could find an approach that allowed them to “get to yes” in their commercial negotiations by exploring their underlying mutual interests — getting more high-priced, high-quality coffee into the market.

It turns out, this approach is not as novel as I thought.  Earlier this month, the sustainable coffee buyer for a large U.S. roaster told me that the company has often applied a half-cent-per-pound investment premium to its contracts to finance select investments at origin to upgrade the coffee chain.  These increases in price are temporary, ending when the agreed-upon project concludes.

Not all farmer organizations have the werewithal to develop and implement community projects or the confidence to seek funding for them from their commercial partners.  And not all buyers are interested in letting the conversation stray too far from the issues of quality and price.  But broadening the discussion to include coffee-related investments sure seems like a promising way for coffee companies to reinvest at origin, and could be a mechanism to bridge the gap between coffee and development.

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