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198. Three principles of “harmonized investment”

2011-09-12 Comments Off on 198. Three principles of “harmonized investment”

A little over a year ago, in a post on industry reinvestment at origin, I raised the prospect of “harmonized investment” — complementary, non-overlapping investments in the coffeelands by diverse actors on the coffee chain.  Recent events have inspired me to revisit the idea.

The inspiration for my original post on this topic last year was a conversation with a U.S. importer that — somewhat accidentally — facilitated something that looked an awful lot like harmonized investment.  In responding to requests from its roaster customers for leads on social investment opportunities at origin, the importer managed to help multiple roasters separately fund different projects involving the same cooperative.  The net result was a whole that was greater than the sum of its parts, but it was all very serendipitous.

Last year I wondered whether it would be possible to faciltiate this kind of harmonized investment more deliberately, and what a more purposeful approach might look like.  A few weeks ago, I think a few principles of the harmonized investment model may have revealed themselves when a quality-obsessed café (Peregrine Espresso) announced it would reinvest a portion of its sales of coffee from a smallholder cooperative in Nicaragua (5 de junio) in a local NGO (Fabretto) working with the cooperative to promote food security in the coffeelands.

These three principles do not constitute a blueprint, but could be helpful for anyone seeking to deliberately foster “harmonized investment” at origin.

  • Strong cooperatives with a social mission…

One of the reasons the original, accidental harmonized investment proved successful is that roasters made social investments in a stable cooperative with a strong social mission that was capable of effectively designing and implementing community development projects.

But not all cooperatives are created equal.

  • …or specialization and partnership

Some cooperatives simply can’t manage development projects.

Some of the early forays into reinvestment by direct-trading roasters did not meet with success precisely because the cooperatives in which they invested were not particularly good at managing community development projects.  This should not be seen a strike against Direct Trade roasters, which were not created as development agencies, or coffee cooperatives, since most emerged in the first place to meet a specific, narrow need: bringing coffee to market collectively and achieving better terms of trade than their members could get on their own.

Other cooperatives simply aren’t interested in doing community development work.

A number of coffee cooperatives and exporters that are plenty stable and strong have made the deliberate choice not to manage development projects because they feel like it is a distraction from their core business: bringing to market as much coffee of the highest possible quality.

Fair enough.

But these cooperatives, too, can be part of a harmonized investment model if they have partners that are interested in and capable of effectively turning reinvestment into social impact.

Chajulense is arguably the preeminent grassroots cooperative in Guatemala.  A few years ago, the cooperative’s leadership decided that the rising quality standards of the specialty coffee market and the increasing complexity of managing a growing cooperative didn’t allow the organization to continue to fulfill both the social development and coffee marketing dimensions of its mission. Today, the coop sells dozens of containers of certified specialty coffee to the U.S. and European markets, while The Ixil Foundation implements community projects.

The relationship between the Fabretto Foundation and the 5 de junio cooperative in Nicaragua referred to above is another example of a localized, cooperative-NGO partnership based on specialization: Fabretto implements education and food security programming in the communities where the 5 de junio’s members live, leaving the cooperative to focus its efforts on coffee.  Importantly, the cooperative sees its coffee as an engine for driving investment to the NGO.

  • Chainwide coordination

The final element of the Peregrine-Fabretto-5 de junio connection that grabbed my attention was the coordination of social reinvestment between multiple actors within the coffee chain.  This social reinvestment was not fostered by an NGO or a certifier.  Peregrine learned about 5 de junio — and Fabretto — from Counter Culture Coffee, which sources Peregrine’s three lots of 5 de junio.  Counter Culture itself has not made any social reinvestment in 5 de junio communities, but it has shared information about the 5 de junio-Fabretto relationship with its café customers like Peregrine, and in this way helped to facilitate reinvestment.

  • So what?

There are two separate but related elements here worthy of some attention, from my perspective.

Broadening the focus of trading relationships.

Even among quality-obsessed actors like Counter Culture, the bandwidth of the specialty coffee chain is expanding to accommodate non-coffee information.  Counter Culture didn’t just send Peregrine the usual fare — information on varietals, processing, cup profile, etc. — but also included info about 5 de junio’s vision and the relationships it has cultivated with other local actors to contribute to local development processes.

Investment advice as an added value.

The Counter Culture-Peregrine example suggests that the provision of actionable information on specific opportunities for reinvestment in the coffeelands is coming to be regarded as a source of added value in trading relationships.  Few cafés have the luxury of sending their baristas to origin or developing direct relationships with cooperatives.  But Direct Trade roasters do.  And importers certainly do.

Importers and roasters are critical information leverage points that both represent the primary point of entry for other actors downstream on the coffee chain.  If these critical leverage points start including “social development prospectuses” with their coffee bios and offer sheets, the way downstream actors reconnect and reinvest at origin could change significantly.