The impacts of microlots on smallholder farmers has been a topic of discussion on this blog dating back to 2010. The research on the issue to date is largely inconclusive, and powerful critiques of the microlot model have been leveled by influential actors in specialty coffee who question the inclusiveness and impact of the Direct Trade approach. But last week in Nariño, we saw compelling evidence to suggest that microlots can generate positive economic impacts, even for the smallest of smallholder farmers.
For our Borderlands Coffee Project in Colombia, we have recruited six leaders in the U.S. specialty coffee industry to serve on a project Advisory Council. Three of them are pioneers of the Direct Trade/microlot approach to sourcing coffee: Counter Culture, Intelligentsia and Stumptown.
Last week they all came to visit the project for the first time.
During their visit, Advisory Council members cupped small lots of coffee from 24 coffee growers selected on the basis of their strong performance last year during the project’s coffee quality baseline survey. Last week, the average score awarded to those coffees was over 84 points. Together the six buyers awarded 21 scores of 86 or higher and four of 88 or more. One roaster awarded a score of 90 points. Sixteen of those 24 coffees were purchased as microlots at prices ranging from 74-327 percent above the local market price; on a day when the price in the nearest town plaza was $0.92, these roasters paid an average price of $1.92.
In my mind, these results validate two of the central convictions of the Borderlands project: (1.) that many of Nariño’s smallholder farmers are already growing coffee that meets the quality standards of the most demanding buyers in the U.S. specialty coffee industry and (2.) they are missing income opportunities because they don’t have enough access to this segment of the market.
The 16 farmers who earned premium prices for their coffee last week made no special investments this year to increase the quality of their coffee. It is the same coffee they have been bringing to the town plaza for years and selling at the prices posted there based on an assessment of its physical quality, with no consideration of cup quality. The only thing that changed this year was that the Borderlands project invested in correcting a market failure; in a place where great coffees are not finding their way to buyers willing to pay growers on the basis of their cup quality, CRS brought talented farmers and willing buyers together to create value for farmers and roasters alike.
While Nariño is an exceptional origin in terms of its growing conditions, the underlying failure of markets to link growers and buyers who share a commitment to quality is not unique to Nariño. As we work over the final 3+ years of the project to increase coffee quality and expand the volumes of quality coffee available to the marketplace, we will collaborate with researchers and industry actors to track the economic returns to smallholder investments in microlots.
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TIMELINE and FURTHER READING.
- November 2010.
Former Counter Culture Coffee Director Peter Giuliano discusses the potential perils of microlots on this blog with Matt Earley of Just Coffee, a Fair Trade roasting cooperative in Madison.
- May 2011.
Counter Culture commissions research into the social impact of microlots in its supply chain.
- January/February 2012.
Unaware of the Counter Culture initiative, CRS advocates for more research at origin into the returns to smallholder farmers of investments in coffee quality.
- 21 April 2012.
- Counter Culture releases its study The Social Impact of Microlots and presents it to 2012 SCAA Expo audience.
- CRS publishes this interview with Counter Culture Sustainability Manager Kim Elena Ionescu, who directed the study.
- CRS publishes this review of the report, calling for more research into the quantitative impacts of micrlots.
- Summer 2012.
Counter Culture begins working with Colombian exporter Virmax to design a questionnaire that incorporates economic impact questions into its ongoing research into the social impacts of microlots.
- January 2013.
Counter Culture and Virmax begin collecting data from Colombian microlot producers in their supply chain.
- May 2013.
Counter Culture, CRS and CIAT explore expansion of microlot research to include Borderlands Coffee Project participants in Nariño.
- June 2013.
During a visit to the CRS Borderlands Coffee Project, Counter Culture buys its first microlots from Nariño.
When you take into account the expenses for the cupping event described above (which I assume was mostly for air fare, other travel expenses and the cuppers’ time) do you think it could be replicated on an ongoing basis without external financial support?
I’ll assume that whatever the economics are of a cupping session for 16 farmers that it would be more efficient/cost-effective if 32 or 64,etc, farmers participated.
It does seem to have worked out well for the 16 farmers so I’m trying to determine if potential microlot buyers would find enough value to make such events a regular part of their activities.
It is good to hear from you. It has been a while.
Thanks for your comment. The question is a good one. I am still doing the calculations you refer to, and it may be a wash–the amount we spent on the event looks like it may be roughly equivalent to the additional income generated through the process. And if this were the proposal for the life of the project–subsidize annual cupping events that will lead to 12-20 microlots a year–it would not be a very sustainable or compelling one. Fortunately, that is not the vision. The vision is that our project investments are social venture capital. We assume risk so other, more vulnerable actors don’t have to. Our seed money builds out the model at some modest scale and demonstrates its ability to generate value all along the coffee chain–for farmers, exporters, importers, roasters and consumers alike–so that other actors, public and private, will continue to invest in a good thing once our project comes to an end.
When we first started talking with farmers in Nariño back in 2010, the one thing we heard more consistently than anything else was a desire for more options in the marketplace. People were not complaining–Starbucks put Nariño on the coffee industry map more than 20 years ago and has remained committed to the region ever since; more recently, Nespresso has moved into the region, delivering high prices and agronomic assistance to farmers. Together, Starbucks and Nespresso buy over 99 percent of Nariño’s coffee on terms that are generally very good. Farmers appreciate that. And yet…they have a nagging sense that there may be more out there for them. That they may be leaving some value on the table. We share that sense and based on more than a year of analysis of the current market constraints and opportunities in Nariño and the specialty coffee marketplace, concluded that there were immediate opportunities in the Direct Trade segment of the market for farmers already producing high-quality coffee. Last week’s cupping and sales were a validation of that hypothesis but only the first step in a longer process of expanding opportunities through trading relationships based on mutual commitment to quality and transparency.
The hope for this year was to just get a few microlots into the marketplace to validate our belief that there are already coffees in Nariño meeting the highest standards of quality. Personally, I was thinking that 4-6 would have been a real success. Instead there were 16. The plan for the next three years is to build on this experience by going deeper–improvement of coffee quality at the farm level–and broader–improved social organization to expand the volumes of high-quality coffee being brought to market directly. Together, making progress on these counts will raise the unit price farmers earn for their coffees and increase the number of farmers participating in these relationships. Refocusing the chain on coffee quality is the idea. Agronomic assistance focused on quality and the two farmer-managed collective wet mills the project is building are keys to that vision.
The project can’t achieve these outcomes for Nariño’s 38,000 coffee-growing families, but it can help some of the 1,600 farmers in our Borderlands project to achieve them. More importantly, it can build the evidence-based case that investment of public and private funds around this alternative approach to the coffee market can generate social and economic value for actors all along the chain. In fact, there is already movement in this direction. When we first started talking about collective mills a few years ago, there was very little support for the idea among the region’s coffee institutions. But farmers liked the idea and others, including the National Coffee Growers Federation, Nespresso and the Government of Nariño, have come around to the idea. CRS has worked with the Government of Nariño and other local coffee sector actors to design a separate project that begins to invest public funds in this vision.
In summary, we don’t believe that a handful of microlots are going to change Nariño’s coffee culture. But we do see them as a first step on a long path that can.
Well, that does sound promising. I’m glad I asked.
Which of the following do you think might be more likely down the road?
Scenario A ) Nariño growers pooling their resources to stage such events on a regular basis. Since they stand to gain economically there is a business case to be made for that. I suppose one problem is that of collective action. The farmers as a group would presumably need to pool funds to stage the events, but – if I understand it right – the potential gains go to those individual farmers whose coffees cup best. In other words, a ‘socialized’ investment that leads to private gains.
Scenario B) The roaster/importers collectively funding the events as part of their ongoing work to source the best coffees. My guess is that this route is more likely.
I think both (A.) and (B.) are possibilities, but in my mind success looks like scenario (C.) in which these special events gradually give way to cupping, quality feedback and price negotiations in the context of stable trading relationships between roasters and farmer organizations. In the end, we want this process to rely less and less on coffee auctions over time and move more and more toward the kinds of sustained trading relationships that roasters like Equal Exchange have been modeling for a long time. Because we feel that quality-based differentiation is the best strategy for creating new market opportunities in Nariño, we “led” with the cupping/auction format, but are continuing to do the more traditional work of farmer organization so this process doesn’t foster socialized investment for private gain, but creates social and physical infrastructure that is capable of bringing more farmers into the process and more coffee to market. Last week’s microlots ranged from about 300-3000 pounds per lot. We believe we can help farmers create and manage collective processes that move coffee in container increments. All of this is not to say that I want the cuppings to go away. On the contrary, I would like to see them become an annual event in Nariño to showcase coffees from its different growing regions and continue to attract buyers who want to relate directly to growers and are willing to work on a small scale (2-3 containers instead of 200-300 containers). I think the project will continue to invest in supporting these events, but I would like to see the leadership and costs be assumed other local actors who will be around long after our project is a distant memory.
Thanks for another interesting post, Michael. I’m sure a lot of people have made similar observations in the past (for me, it was a particular farmer in Nicaragua almost 10 years ago whose coffee value jumped after joining a strong co-op), but it’s valuable to see a more systematic approach to measuring it.
To what extent to you think the Nariño experience can be generalized into a broader livelihood strategy for smallholders? As a corollary, to what extent do you think your data supports the idea that roasters sourcing high quality coffee can support community development, sustainability, etc?
Good to hear from you. It has been a long time.
Yours is the $64,000 question: is the microlot model “good development?” Does it generate higher returns for farmers than other leading approaches to “sustainable” smallholder sourcing, especially Fair Trade? Does it create opportunities for the poorest farmers or is it better suited to mid-sized and large estates able to take more risks? If it does serve the needs of poor farmers, does it create enough opportunities for enough farmers to make it a leading strategy for development agencies like ours?
We are investing in collaboration with CIAT and Counter Culture Coffee, whose pioneering research into the social impacts of microlots has pushed the frontiers of our understanding of this issue, to study these questions more rigorously in Colombia than anyone has anywhere before. The research will start getting rich when we see farmers making additional investments in quality and we start tracking margins–how much can farmers invest in quality improvement before hitting a point of diminishing returns?
Meantime, my own hypothesis is this: that this approach has high potential for increasing economic returns to smallholder families in Nariño but may not have the same promise in other coffee-growing countries. It looks like it can thrive in Nariño due largely to the particularities of its agroecology and the political economy of its coffee sector: Nariño’s production conditions are extraordinary–it has the potential to produce a disproportionate amount of coffee of extraordinary quality; and Nariño’s coffee sector has been organized to move large volumes of coffee–it has not created incentives for the kinds of quality-based differentiation that the Borderlands Advisory Council members are creating through the project.
Beyond Nariño, I see lots of challenges to across-the-board replication of this approach. You mention Nicaragua in your comment. I worked for years in Nicaragua, where there are LOADS of well-developed trading relationships that link talented farmers and willing buyers through strong cooperative structures, but the microlot approach did not thrive for reasons related to the same agroecology and political economy variables mentioned above–it was always more of a struggle for farmers to produce coffees of the quality that we are seeing in Nariño, and the cooperative structures that have been so vital in linking smallholders to markets distrusted the microlot process in many cases, fearing it was sowing the seeds of social disunity by creating financial incentives for separation on the basis of quality.
In the end, I have come around to a very strong embrace of a segmentation strategy for all coffee-growers–separate your coffee on the basis of quality and sell each lot for the biggest premium you can, whether that premium is based on cup quality, certifications or some other factor that buyers value. That may or may not include microlots.
Two other thoughts prompted by the good comments from Rodney and Michael.
(1.) Not just microlots.
I have focused here on the early success of the Borderlands project in helping quality-focused roasters source microlots from Nariño. It is an important part of the project’s marketing strategy but hardly the only one. We are also–as Rodney and Michael both know and disapprove of–working to support farmers participating in the world’s first Fair Trade Certification pilot with independent smallholder farmers. While that process does not ignore quality, it does not reward it in the same way as the microlot process. Instead, it creates incentives for democratic organization and farmer empowerment. The farmers we work with have collected coffee from their members and expect to sign a contract for it in the coming weeks. We expect this pilot to generate two containers of coffee that meet emerging standards for Fair Trade Certification for independent smallholder farmers. While the prices are not likely to be as high as those achieved with the microlots, this process has fostered farmer organization where it has failed to thrive in the past and has the potential to move much larger volumes of coffee than the microlot approach will–a tremendous complement to microlots and current market options as part of a broader approach to market segmentation.
(2.) Coffee, Fair Trade, Al Capone and Bob Dylan
There is a famous quote attributed to Al Capone that goes something like this: “You can get more with a kind word and a gun than you can with a kind word alone.”
And Bob Dylan suggested famously that the times are a-changin’.
Thanks to changing times in the U.S. coffee market over the past decade, we may be able to apply the Al Capone logic to Fair Trade: “You can get further with an 86-point coffee and a Fair Trade model than you can with a Fair Trade model alone.”
The Direct Trade/microlot model that puts quality first, second and third on its list of priorities may not always and everywhere share Fair Trade’s underlying commitment to social justice, but it is a coherent approach to sustainable trading relationships and it has influenced the industry. There are just so many cafés in so many markets serving such good coffee today that Fair Trade roasters have had to raise the bar. Roast Magazine’s decision to award Microroaster of the Year honors to Fair Trade roasters two years running is pretty good evidence that FT roasters are responding well to the market signals.
Why do I raise this here? Because the roots and branches of Fair Trade and Direct Trade are all tangled on the family tree of sustainable coffee. And because a post on Direct Trade and microlots has generated comment from just two people so far–both effective and passionate advocates and practitioners of Fair Trade. The direct relationships the project is fostering and the focus on quality may not overlap totally with the project’s Fair Trade pilot, but as the interest expressed here by Fair Traders suggests, these are also increasingly important elements of competitive Fair Trade relationships.
Thanks Michael, very good thoughts all around.
At the moment, it feels like microlots probably aren’t a good general development strategy for many reasons (variable acroecology considerations, access to markets/infrastructure, etc), but they may be an excellent strategy for specific groups. If the stars align just right, it could have tremendous potential for those farmers/groups, and your Al Capone-turned-Cafetalero logic sounds unassailable to me.
Without wanting to hijack a post that’s supposed to be about microlots, could you elaborate on your point about FTUSA’s independent smallholder program creating, “incentives for democratic organization and farmer empowerment”? I’ve been under the impression that democratic organization among farmers in Nariño has been impossible, dangerous, etc. If this isn’t the case, why haven’t they organized before? If it is the case, what role do you see the program having in overcoming the obstacles?
Not hijacking at all. I brought up the FT pilot in the first place.
I know I have written here before on the challenges to farmer organization in Nariño, but I never meant to suggest it is impossible. Just rare. Of 38,000 coffee-growing households, there is only one Fair Trade Certified cooperative with 270 members. Coffee has been grown in Nariño for a long time, but the kinds of farmer organizations you and I have come to know and respect in places like Nicaragua haven’t taken hold there.
It is dangerous? There are various armed actors in the communities where we work. Following the first meeting we held of participants in the Fair Trade Certification pilot, farmers were detained by armed guerrillas. And our staff have been detained by armed actors on a number of occasions during their visits to the field in connection with the project. So there is some risk associated with all field work in this kind of context, and organizing farmers is no exception.
And yet, the pilot is showing real promise. Last year the farmers we work with in conflict-affected communities collected coffee and brought it to market collectively for the first time ever. That coffee was never sold on Fair Trade terms, because the pilot Market Access Partner, a family-owned exporter in Nariño, entered bankruptcy shortly after the harvest. It was a source of real disappointment for the farmers, who worked hard to earn certification, build a Fair Trade Committee and undertake collective processes for the first time in their lives. And yet, they came back at it again this year, undeterred, and will likely be rewarded for their persistence with a contract and social premiums. I see the makings of a formal cooperative there, but it is still early.
Would you say the threat of violence has been the main obstacle to greater organization among the farmers, or has it been something else?
It seems to me that, with their considerable agroecological endowments, reliable demand for their coffee, and the support of an organization like CRS, the benefits of organization in Nariño would extend well beyond the advantages that may come through fair trade certification and the case for organization should more or less make itself. But it sounds like it hasn’t, and I’m curious as to why that might be.
I would defer to others who have been working in Nariño longer than I have to organize farmers, but I think an important element to consider are the incentives to organize. It is my sense that in a place where prices are high (Colombia premium + Nariño premium + fierce competition between Nespresso and Starbucks = significant upward pressure on price) and the National Coffee Growers Federation guarantees to purchase everyone’s coffee at a minimum price, the costs/risks of organization have been perceived to outweigh the benefits. The Fair Trade pilot, with its promise to open the doors to new buyers and deliver social premiums, has begun to change the calculation a bit for the farmers involved.
Another excellent post, and most timely for us at our shop, and more broadly for all of us at Cooperative Coffees. We are having many internal conversations that mirror this post and we are starting some new initiatives as we navigate this approach. We have begun lot segregation, based on quality and direct links to specific communities or farmers, with some of our producer partner coops (rather than sourcing only from an entire coop, with homogenized lots made up from thousands of members from a large geographic region). Last year we sourced a full container of coffee from one such community from Cenfrocafe in Peru, of the 275 bags, 50 were a higher quality lot which received a 30 cent premium (above the local differential, organic and FT premiums that the 225 bag lot received). All this coffee was from one micro region and we committed to both quality levels. We are treading into these waters aware of Counter Culture’s reports, and also recognizing these attempts of mixing micro-lots with Fair Trade coops have a mixed success rate, but I feel strongly that these initiatives can work when executed by the right buyers and farmer groups. We are discussing a similar project north of the equator in Chiapas. I just tasted some amazing samples from specific communities from a coop that Coop Coffees has been buying from for over a decade. I see the potential of this farmer coop and Coop Coffees adding new coffees (micro lots, or as we are calling them in these multi-farmer scenarios “community lots”) to our collective portfolios as the evolution and development of fair trade and sustainable coffee. I’d love to lend our experience and provide some more data to your body of work, and continue to learn from your project as well. Thanks again for holding the space for this dialogue!
Thank YOU for weighing in here. I can’t think of many people better positioned to weigh in from the intersection of Fair Trade and Direct Trade. Thanks, too, for the offer of collaboration. I look forward to continuing the conversation offline and comparing notes.