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268. “Whole-of-business” trading solutions

2012-05-07 Comments Off on 268. “Whole-of-business” trading solutions

In this article in the current issue of Roast Magazine, Fair Trade USA CEO Paul Rice again expresses optimism about the future of Fair Trade Certification in the United States.  Before you panic, let me say this is not another post about Fair Trade for All.  At least, it is mostly not.  Mostly, it is about the term Paul uses to explain why he believes his grand gamble on FT4All will pay off: because it provides big brands with “whole-of-business solutions” to certification.

Last week, I asked whether bigger is better when it comes to how well coffee companies can service their partners at origin.  Earlier today, I wondered whether there may be a “sweet spot” between “Small is Beautiful” and “Bigger is Better” from which coffee companies can combine the best of both.  Today, I suggest that “whole-of-business solutions” require relationships with all kinds of partners — small, big and everything in between.

Whole-of-business solutions in the marketplace.

In the Roast article, Paul argues that lots of companies limited themselves in the past to certifying only one or two coffees because they didn’t see enough volume coming from a cooperative-only certification to make a deeper commitment possible.   He sees the eligibility of estates and independent smallholder farmers as a game-changer that makes it possible for larger companies to make a deeper commitment — perhaps even a “whole-of-business” commitment — to Fair Trade Certification.  In this case, it is the diversification of supply chain relationships — from the coop-only approach to certification to coops+estates+independent smallholders — that may make a “whole-of-business” commitment possible.

Whole-of-business solutions at origin.

The idea of whole-of-business solutions is as relevant at origin as it is in the marketplace.  Smallholder cooperatives seek to develop direct, high-value relationships across-the-board to best serve their members.  But no single trading partner — or business model — can deliver enough value for all their members or all their coffee.

Some buyers are quality-obsessed Direct Trade roasters who will pay extravagant premiums for coffee that meets their exacting standards, even if the cooperative can only produce a few sacks of it.  But very little of the overall volume makes the grade, meaning that coops have to look elsewhere for the bulk of their business.

Other buyers are seeking Fair Trade Certification.  Some of these are roasters that are committed to direct and developmental trade, paying handsome social premiums and seeking opportunities to invest in other ways to improve the well-being of coffee communities.  These are obviously desirable relationships for cooperativers.  But there are precious few roasters out there who operate in this way, and they tend to be relatively small.  (See “Whole-of-business solutions at CRS” below for more on this idea.)  So coops sell as much of their Fair Trade Certified coffee to these buyers, and the rest to buyers who are more committed to the certification than the underlying relationship.  These sales generate less value for coop members than the sales to fully committed Fair Trade roasters, but still more than conventional trade.

And so it goes for successful, well-managed cooperatives — they seek to maximize the value of their trading relationships by migrating as many of their members and as much of their volume as possible to higher-value channels, minimizing the amount of coffee they sell on a commodity-trading basis.  The keys to whole-of-business solutions at the coop level are coffee differentiation, market segmentation and relationship diversification.

Whole-of-business solutions at CRS.

Finally, I would say the concept of whole-of-business solutions can help explain why we have migrated in our work at origin beyond our initial and narrow embrace of fully committed Fair Trade companies to engage a broader and more diverse range of industry allies.

When we started our coffee work at origin in Nicaragua back in 2003, we were working exclusively with fully committed Fair Trade importers and roasters, who helped a CRS-supported cooperative sell its first container of (Fair Trade and organic) coffee into the U.S. market.  This was a natural approach for us.  The fully committed Fair Trade Organizations we collaborated with in the field were partners in our Fair Trade Coffee Project in the United States, and we were excited about the developmental potential of their approach to trade, which was based on direct contact with farmer organizations and fair, transparent, long-term trading relationships.  We felt that as long as we could continue to connect CRS-supported farmers with companies like these, we would do so.

Over time, however, as our relationships with coffee farmers expanded to other countries in Central America, East Africa and South America, we found that we couldn’t rely exclusively on Fair Trade pioneers to bring our partners’ coffee to market.  We broadened the circle and developed relationships with other industry allies that are not fully committed to Fair Trade, but are doing lots of great things for farmers: developing and sustaining direct relationships, trading transparently, paying high prices, creating incentives for improved coffee quality, introducing new technologies, reinvesting at origin, moving larger volumes of coffee, etc.  We continue to work with the Fair Trade pioneers who helped us start our journey in the coffeelands, but have been able to provide more effective support to more of the smallholder farmers we accompany at origin by diversifying our relationships with roasters and importers.  We still haven’t got a “whole-of-business” solution for our coffee value chain work, but the more we broaden the circle of our relationships in the coffee industry, the closer we get to that elusive ideal.