327. Single-serve brewers: A view from origin

The single-serve café may be the innovation that has most refined the presentation of specialty coffee in recent years, but the single-cup brewing system for home use has unquestionably been the innovation that has most disrupted it.

To borrow from the lexicon of American political discourse, single-cup technologies have been embraced from Wall Street, where the financial sector loves the business model, to Main Street, where mainstream consumers love the convenience.  They have also been well-liked on whatever street is synonymous with corporate America, where the list of companies lining up to get in on the high-margin single-cup action is long and growing.  The growth of the segment has been nothing short of phenomenal.  But not everyone is sold on the convenience and consistency that single-cup brewers offer.  The critiques of single-serve pods — and there are not a few of them — focus relentlessly on their high cost, low quality and implications for the environment.

• Cost.
  Single-serve pods are expensive.  In some cases, over $50 a pound, or more than twice what quality-obsessed roasters charge for most of their carefully sourced, fresh-roasted coffee.

• Quality.
  Even the most advanced technology can’t keep coffee from losing freshness and flavor when it is roasted and ground months before it is brewed.  People who prefer their single-serve coffee pulled, poured or pressed by baristas continue to marvel at the extent to which consumers are willing to trade off quality for convenience.

• Environmental sustainability.
  There is no escaping the environmental impacts of non-recyclable single-use plastic pods.  Billions of them are piling up right now at landfills near you.

Whether arguing for or against single-serve brewers, writers have spilled a lot of ink their coverage of single-cup brewing systems.  What seems to be largely missing from the discussion, however, are the perspectives of the farmers whose coffee is inside all those pods.  While the motivations of consumers buying expensive single-serve capsules in the marketplace may leave observers scratching their heads, the motivations of the farmers who fill them may not.

• Nespresso in Nariño

Our Borderlands Coffee Project is working in Nariño, a region on Colombia’s southern border celebrated for the quality of its coffee.  Nariño is part of Colombia’s eje de calidad, a relatively recent reference that contrasts the southern Colombian departments of Cauca, Huila and Nariño, where smallholder farmers produce smaller lots of surpassing quality, from the departments in Colombia’s traditional eje cafetero further north, where larger plantations are produce enormous volumes of coffee with less quality-based differentiation.  Nariño dominated Colombia’s 2010 Cup of Excellence competition.  It was the first origin in Colombia to earn a Denomination of Origin appellation.  And Nariño’s coffee commands an origin premium on top of the already high price of Colombian coffee.  It seems, in other words, that Nariño’s coffee farmers would have plenty of options in the marketplace.

And most of Nariño’s coffee goes to Nespresso for use in its single-serve pod: the Rosabaya de Colombia blend.  Why?  In part because Nespresso is generating lots of value for farmers.

It pays higher prices than its competitors.  Turns out that the delivery format that allows Nespresso to charge $51 a pound at retail also allows its to pay top dollar at source.

Farmers who are qualified to sell into its AAA sourcing program can sell all their production at Nespresso prices, not just a small portion that meets exacting standards for cup quality.

And Nespresso pays its exporter a significant per-pound premium to build and maintain a small army of agronomists who provide technical assistance to the farmers in its supply chain.

These are all significant sources of value for farmers, and help explain Nespresso’s dominance of the Nariño market in recent years.

• Green Mountain in the K-Cup era

On this side of the Atlantic, where Nespresso has made more modest inroads, the single-serve pod market is dominated by Green Mountain’s Keurig K-Cup brewing systems. Unlike Nespresso, which doesn’t do anything beyond its espresso machines, Green Mountain sells its coffee in multiple formats.  But the explosive growth of the single-cup market — millions of K-Cup brewers and billions of K-Cups sold to date — has driven the company’s extraordinary growth over the past five years or so.  It has also created enormous opportunities for farmers.

Green Mountain was already a leading buyer of Fair Trade Certified coffee long before it bought Keurig.  But the rise of the K-Cup has allowed the company to expand every aspect of its business, including its Fair Trade sourcing.  In 2011, Green Mountain sourced 50 million pounds of Fair Trade Certified coffee — more than anyone else in the world — which means it paid $10 million in social premiums to Fair Trade cooperatives.

And as the company’s sales have soared, so too have its reinvestment in the coffeelands.  Green Mountain earmarks 5 percent of its pre-tax profits for community reinvestment.  So when Green Mountain does well, so do its shareholders in the marketplace and its stakeholders at origin. In 2011, Green Mountain spent $15 million in the coffeelands to fight hunger, promote community-based health and economic development, expand access to education and water, conserve natural resources, and more.

Farmers may be beyond earshot of the debate over the cost, quality and environmental implications of the K-Cup pod, but they have a keen grasp of the opportunities it creates at origin.

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This is not the first exploration of the impact at origin of single-serve brewing systems.  In recent years, Nespresso’s critics and champions in Europe have gone a few rounds in debating the merits of its model for farmers.

• Round 1 to Clooney and Nespresso.
  Nespresso conquered the European market for single-serve brewers thanks in part to a sleek ad campaign featuring some reliably effective motifs: PG-rated double entendre and the idea that at Nespresso’s sleek Club cafés, even schleps like us are given the George Clooney treatment.

• Round 2 to obscure Belgian NGO network Solidar.
  After Clooney became recognized as the face of Nespresso, a little-known Belgium-based NGO network called Solidar produced this parody featuring a Clooney look-alike who gets hit in the private parts by a falling corporate sign evoking a familiar corporate logo.  The ad features a voice over accusing Nespresso of exploiting smallholder farmers and farmworkers.

• Round 3 to well-known Dutch NGO Solidaridad.
  Later that month, the executive director of Solidaridad, a well-known Dutch organization with a long history of support for coffee farmers, published this open letter suggesting that Nespresso isn’t doing well in the market because it is gouging farmers at origin, but because it is offering them the highest prices.