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113. More on quality, innovation and risk

2010-12-07 Comments Off on 113. More on quality, innovation and risk

Last week I explained how we are reducing the risk of innovation for smallholder farmers who are working to improve coffee quality.  Lest someone think the subsidy we are providing in that pilot project is the exclusive domain of development agencies and NGOs that spend other peoples’ money, I want to share some details today about a roaster that has taken a similar approach with its own resources.  The pioneering Fair Trade roaster Equal Exchange is paying a farmer organization in El Salvador to implement new post-harvest practices, without regard to cup quality.

  • The context.
    Smallholder coffee in El Salvador.

    Almost all smallholder coffee in El Salvador comes from cooperatives of farmers who collectively manage medium to large estates they acquired during the country’s land reform in the early 1980s.  Since all the coffee comes from a single farm and is centrally milled, this model gives smallholders in El Salvador potential quality advantages over their counterparts in other countries, where coffee is commonly grown, harvested and milled on hundreds of individual parcels, then sold to cooperatives and blended.

  • The innovations.
    Microlots and harvesting incentives.

    Equal Exchange has worked over the past two years with one of its partners in El Salvador to take fuller advantage of the opportunity for quality-driven innovation.  Last year, Equal worked with cooperative leaders to develop a microlot system that creates a number of distinctive offerings instead of a single, blended product with a fairly uniform profile.  Together, they divided farm into separate lots, or tablones, based on their potential to generate different cup profiles, and implemented a system for separately harvesting and processing coffee from each lot.

    This year, Equal is working with the organization increase the number of times it picks its coffee and its discipline during the process.

  • The payoff.
    Rewarding process and not results.

    Microlots are old news, and it is common knowledge that farmers interested in quality should be picking 4-6 times per harvest.  What is noteworthy here is that Equal has paid the cooperative for process innovations and not cup quality.   Loads of roasters will pay premium prices for quality coffee, but not all of them are willing to pay out on the front end for processes that may or may not lead to quality improvements in the cup.  Smallholders in most cases are left to experiment and innovate on their own, often taking losses before getting any payoff in the cup or in the market.

    The measures that Equal Exchange is working with its producer partners to implement represent its best ideas of how to increase quality.  But there are no guarantees.  The healthy premiums that Equal Exchange paying to get these measures implemented ($0.30-0.50 per pound) represent the kind of co-investment that can foster quality gains that spread risk and reward fairly along the coffee chain.

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Risk-sharing rarely makes the short list of Fair Trade talking points, but Equal’s willingness to put its own resources on the line for a shot at shared gains is, from my perspective, a pretty compelling expression of Fair Trade values.