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46. How far can quality take a trading relationship?

Last week I suggested that quality is still king when it comes to industry reinvestment at origin.  Certainly, organizations like ours that accompany smallholder farmer organizations and try to help them compete more effectively in the specialty coffee market have invested healthy sums over the years in improving quality.  We see it as the single most important point of differentiation in the marketplace and one of the key determinants of how much farmers earn for their coffee.  But unless a farmer is lucky enough to have a few hectares planted with Gesha, or happens to live at an optimal altitude with conditions naturally conducive to producing world-class coffees, getting to the outer bounds of the quality spectrum — and staying there — is hard work.  The marginal return on that effort — especially in a high market — may be negligible.  So while we continue to promote a holistic approach to quality from the seedling to the mill, we are also continually asking ourselves how far to ride the wave of upward pressure on quality coming from the market end of the chain.  

Both the farmer organizations we accompany at origin and the quality-obsessed roasters we consort with in the marketplace have sounded a similar refrain this harvest: current quality premiums are not enough.

At origin, where prices were unusually high in many communities, many farmers have told us they were less willing this year to invest the extra time and energy necessary to achieve optimum quality.

At the market end of the chain, we hear the echo of that sentiment.  A few celebrated roasters have explained to me in recent months that for years, the premiums they were paying for coffees of extraordinary quality were enough to ensure that their producer partners would make the investments necessary to meet and maintain the roasters’ exacting quality standards — more labor-intensive maintenance, more selective harvesting, more rigorous sorting, improved traceability systems, special fermentation practices, etc.  Now, these roasters are seeing a different reality.  As one roaster put it:  “It is not as much of a no-brainer anymore.”

Roasters could bump their premiums a bit to keep the good stuff coming, but it is not clear how many consumers are willing to absorb the difference during the current “jobless recovery” from the global economic recession.  And what happens to those premiums when the current high market (inevitably) falls again?  Farmer organizations would be reluctant to backtrack, meaning the cost structure for sourcing great coffees would change permanently for roasters.

So we continue to promote investments in quality, but we wonder whether relationships that are uni-dimensional and based mostly on quality are the most durable.  We are also sympathetic when we hear families tell us they are reluctant to make investments in quality when the returns may be marginal.  Of course, over the long term we are confident that investments in quality represent one of the best strategies for mitigating market risk.  Unfortunately, the families we accompany live in the here-and-now and don’t always have the luxury of making short-term decisions based on their long-term implications.

1 Comment

  • Michael says:

    As a post-script, I would just note that Counter Culture Coffee‘s recently released (and commendable) Direct Trade Certification Transparency Report provides some powerful validation of the idea advanced here that in high markets, farmers may not be willing to do what it takes to meet the needs of quality-obsessed roasters. In reference to the company’s producer partners in Rwanda, the report states:

    “In 2009, our co-op partners faced a major threat to their survival when private enterprises opened buying stations around the country for a few weeks during the peak of the harvest to purchase large volumes of coffee at high prices. The prices were attractive enough to many coffee growers that they chose not to sell their best coffee to the co-op as promised, and this left the co-ops short on coffee to sell to their buyers (like us).”

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