Two weeks ago, I suggested that the coffee business is broken and that we need to take extraordinary measures to fix it: create alternative pricing mechanisms, build a permanent institution to foster cross-sector collaboration and send explorers to the frontiers of coffee to search for new insights. We have our work cut out for us, but not all the news is bad.
This post identifies–with the help of some coffee luminaries–five separate but closely related strategies that are helping keep smallholders viable today and will likely be part of any successful efforts to help them thrive into the future:
- Get organized and stay organized.
- Build better relationships.
- Achieve greater differentiation.
- Separate like crazy.
- Increase efficiencies on the farm.
GET ORGANIZED and STAY ORGANIZED.
“We understand that aggregation through cooperatives and associations can significantly contribute to improving access to credit and risk management tools, especially by small farm holders, and better equip them to manage market volatility.”
International Coffee Organization
Belo Horizonte Declaration
Third Consultative Forum on Coffee Sector Finance, 2013
Bono may deliver the message more clearly when he croons “Sometimes you can’t make it on your own,” but I read the ICO statement as a clear call for improved farmer organization in the coffee sector.
Our experience suggests that organization also offers farmers benefits beyond the access to credit and risk management tools that were the focus of the ICO meeting on coffee sector finance. These include expanded access to non-financial services and markets, increased economies of scale, a voice in public policy discussions and social capital that farmers can call on in times of need. Some people call this set of benefits empowerment.
As we see it, smallholder farmers can’t make it on their own, and industry can’t make it without smallholder farmers.
While not all the smallholders who have organized are competiting effectively in the coffee market, all the smallholders who have competed effectively in the coffee market are organized.
BUILD BETTER RELATIONSHIPS.
“A good relationship is a natural hedge.”
SCAA Symposium 2012
The audience for this message may have been a room packed with coffee industry thought leaders and innovators, but it echoes loudly here at origin, where farmers also see direct relationships with roasters as an important part of their strategy for weathering shocks on the farm and in the market. Earlier this year, we surveyed more than a dozen farmer organizations in Central America representing more than 6,800 farmers on the impacts of coffee leaf rust and their strategies for coping with it. In discussions that focused primarily on smallholder liabilities, relationships with roasters came up again and again as an important asset.
While direct relationships can’t keep the bottom from falling out of the market, they can help mitigate the impacts of market shocks so farmers’ fortunes don’t fall as far or as fast as they might in the absence of relationships. How?
One important source of relationships’ value to farmers are the relationships themselves. Coffee and cash aren’t the only things traded bewteen buyers and sellers. Direct trading relationships based on the values of transparency and mutual benefit can foster a rich two-way information exchange. Today, coffee flows downstream from origin to the market on a raft of information: farm and lot data, processing details, grower biographies, etc. And market intelligence flows upstream from the market to the farm–everything that helps growers and farmers’ associations make better decisions about their farms and businesses, from general market and pricing trends to roaster-specific sourcing guidelines and coffee presentation strategies. It may seem like a modest source of value, but it can be vital to growers trying to navigate uncertainty.
At the First International Coffee Rust Summit in Guatemala back in April, coffee farmers hit hard by coffee rust were weighing some big decisions, including these: whether to replant coffee, and what varieties to plant if they chose to stay in coffee. Farmers wanted what we all want when grappling with a big investment–some reasonable information on the return they might expect. Growers in direct relationships with the roasters who buy their coffee could solicit this information directly. But the countless thousands of growers whose coffee finds its way anonymously into the blends of far-off roasters were left to read the inscrutable signals of the market.
And beyond the intrinsic value of relationships lies their instrumental value. Direct trading relationships are rarely undertaken for their own sake. They are usually developed between growers and roasters to create shared value–more production, better quality, certifications, or some other win-win proposition that further helps everyone along the chain minimize risk and maximize value.
ACHIEVE GREATER DIFFERENTIATION.
“Your competitive advantage is quality.”
1st Annual Nariño Coffee Chain Event, 2013
During the keynote address of an event CRS helped to convene in Colombia earlier this year, Geoff Watts told a few hundred smallholder coffee growers from the rugged mountains of Nariño that this is the future of coffee. That if they try to compete on the basis of efficiency, their days as coffee growers will likely be numbered. And that while they need to continue to invest in improving their efficiency, that quality-based differentiation is the key to their long-term viability in coffee.
This message echoes loudly in Nariño, which has been recognized as the source of some extraordinary coffees and where the average farmer has less than one hectare planted in coffee–not likely enough to meet the basic needs of farming families even at high levels of productivity. But is it the right prescription for everyone? In a global marketplace in which coffee production is increasingly consolidated in countries with highly efficient production models, and in which the supply of washed Arabicas is dwindling as a percentage of total supply, quality-based differentiation seems to be a reliable way for smallholders to ensure continued access to high-value markets.
SEPARATE LIKE CRAZY.
“The more you separate, the more money you will earn.”
Blue Bottle Coffee
Let’s Talk Coffee 2013
We have put lot separation at the center of this segmentation approach in our Borderlands Coffee Project. When it works, it can deliver free money to farmers who produce high-quality coffee by matching what they are selling carefully to what buyers in different segments of the market are seeking.
INCREASE EFFICIENCY ON THE FARM.
“They need a quantity of quality.”
Sweet Maria’s/Coffee Shrub
writing from the 2010 GCQRI Congress
At this year’s SCAA I shared data from our field work that showed baseline yields for smallholders under 900 pounds per hectare in Mexico and Central America. Even farmers who succeed in each of the other four areas mentioned above are not likely to meet the basic needs of their families if yields are so low.
So increased yields are necessary for farmers to achieve a quantity of quality, they not sufficient to make farms more profitable and sustainable. Some of the best thinkers I know in coffee have convinced me how the exclusive focus on yields can be dangerous. Increased yields don’t necessarily increase efficiency if they are achieved through heavy investment; they may make farms less efficient if the investments needed to achieve them are disproportionately large. A farm’s efficiency is only improved by investments in new technologies that require fewer inputs per unit of output.
Thanks for another great article. It is clear where the specialty coffee industry is headed with the demand for cup quality as well as how this can benefit farmers.
Here is a question I would pose to these luminaries and others in the industry:
How does the intense drive for higher cup quality fit in with the reality of leaf rust (roya) and its decimation of coffee crops in South America, Central America, and Mexico?
It seems to me that there is an incredible tension between pushing farmers for higher quality and farmers renovating fields with roya-resistant coffee plants. Many farmers who we work with are not currently thinking about 90 plus scores as much as they are thinking about trying to survive the next 3 years and what they need to plant in order to stay in the industry. Many of these resistant strains apparently do not cup out at the level of a Bourbon or another heirloom varietal would.
In a model where roasters and importers are actually honoring long term relationships and investing in farmers, how are players in the global north responding to this issue?
Great to hear from you as always. I know your question was posed to coffee luminaries, and I am definitely not that. And I don’t want to presume to speak on behalf of “players in the global north.” But I will offer some of my thoughts in response to your question anyway.
I agree that there is an “incredible tension” at play in the coffeelands right now. Farmers reeling from the impacts of the coffee leaf rust epidemic are making decisions about whether to renovate their coffee farms and what varieties to plant if they choose to stay in coffee. The choices they make will go a long way to influencing their yields and coffee income well into the future.
I think the two poles on this decision spectrum are (1.) strategies to minimize risk and (2.) strategies to maximize quality. Colombia’s official response to the CLR epidemic here beginning in 2008 seems to me to be the archetype of a risk mitigation strategy. I have not seen any responses that work to promote cup quality as ruthlessly as Colombia works to minimize production risk.
Colombia’s response to CLR has been decisive, coherent and effective, and focused overwhelmingly on resistant varieties as a strategy for reducing production risk in the country’s coffee fields. Colombia’s coffee institutions have ended support for renovation with traditional varieties of coffee and gone all-in with Castillo, the resistant hybrid created by the extraordinary breeding program at the Colombian coffee research center Cenicafe. Castillo is now the only seed the National Coffee Growers’ Federation makes available to farmers. And it is the only variety that qualifies for Colombia’s exemplary publicly funded renovation subsidies. To date, an estimated 60 percent of the country’s coffeelands have been replanted with Castillo. The response has been criticized for its potential impacts on the cup quality of the country’s coffee, but it seems to have successfully reversed in a span of just five years a drop in national production of more than 30 percent that was triggered by CLR.
I read in your question concern that quality-focused roasters in the U.S. market, in their “intense drive for higher cup quality,” may pressure growers to plant or maintain traditional varieties against their will, exposing them to continued risk of production losses to CLR. Again, I don’t want to speak on behalf of “players in the global north,” but here in the global South I have not seen much evidence of that. Mostly I find that roasters–even those who are obsessed with cup quality–are highly sensitive to the plight of smallholder farmers and understand both their vulnerability and their dilemma when it comes to the issue of coffee varieties.
The quote I attribute here to Tom Owen of Sweet Maria’s/Coffee Shrub was actually pulled from a piece he posted to coffeed.com that I will cite here at greater length because it strikes me as both a responsible approach for a buyer and representative of what I am hearing from others relentlessly focused on quality:
Similarly, the quotation from Geoff Watts was part of a presentation in which he encouraged farmers to grow some Castillo to ensure supply and income, but to also reserve a part of the farm for Caturra and perhaps also some of the rock-star or heirloom varieties you mention to have a better shot at accessing premiums.
For our part, we are approaching the issue in our programming with a certain agnosticism–if growers are risk-averse and want to maximize production and minimize risk, we help connect them with the Federation to access its renovation credit for Castillo. If they prefer to plant Caturra or other varieties not supported by the Federation, we provide financing and technical assistance. We are committed, mostly, to bringing all the perspectives from the market to the table so farmers can make the most informed decisions possible about what varieties they will plant.
In this spirit, we are planning a very exciting cupping process for 2014 in Nariño. CRS will be working with a small group of roasters and importers involved in the Borderlands Coffee Project to conduct a comparative cupping of Caturra and Castillo samples taken from 50 farms growing both varieties. This approach will go a long way to controlling for variability in agroecology, farm management and processing, meaning that differences observed in the cup will be attributable mostly to genetics. We hope to publish the results in time for SCAA 2015.
The information will come too late for many farmers, who will have already made decisions about what varieties to plant in renovating their farms, but we believe it will be an important contribution to this discussion, which has been long on ideology and short on rigorous, independent data.
PS: In the event you missed it, I published earlier this year a seven-part series on Colombia’s response to CLR that explores some of the nuances of this discussion in greater detail. –M
Two more things:
(1.) Can I ask you, as a coffee luminary in your own right, what you have been communicating around this issue to your partner growers?
(2.) This discussion so far has omitted any reference to longer-term concerns related to the genetic homogeneity of Colombia’s coffeelands, some 60 percent of which are now planted with Castillo. It has proven to more effectively resist CLR than other traditional varieties, but if it proves to be vulernable to other threats, Colombia’s coffee production will be seriously compromised over the long term by a strategy designed to reduce production risk over the short term.
Michael, great discussion. Thank you as well Matt. I just want to highlight your quote as a sort of “motto” for our industry…
This statement is one of the most fundamental realities our industry faces. Those of us who visit producer communities recognize that emigration is occurring because farmers are not making enough to survive at home, in their communities. We’ve all seen too many abandoned arabica plots (many of which have the ingredients to supply the high end specialty green market). Everyone of us who makes a living selling green or roasted coffee sourced from smallholders should be investing in these farmers, ensuring they are able to stay on their land, with their families, and farming in a way that is attractive to the next generations. Relationship/equitable coffee trade is rewarding to the farmers and the next generation of farmers. Paying farmers more money per pound is crucial, but meaningful work, collaboration, and the essence of a reciprocal dyadic relationship are what keep us positive as we look to the future.
Thanks for your thoughts and all the info. It sounds like the jury is still out on the “taste ceiling” for Castillo. It will be interesting to see what people think of it and how it responds to climate change in the longer term.
At Just Coffee we are trying to connect grower groups with NGOs who can assist with the financing of recovery efforts and technical help. Recently we hosted the president of Las Diosas co-op in Nica up here in Madison and talked with people around Southern WI about CLR. She was able to speak with a plant pathologist and UW and get some good ideas about minimizing the effects of roya. Co-op Coffees is co-hosting a meeting with farmers in Honduras in January to facilitate sharing ideas and knowledge between growers in roya-affected regions. These are some of the things we are working on right now.
I totally agree that if you are currently roasting specialty coffee and not focused cup quality you are not going to be able to compete. My personal preoccupation is in how farmer groups out there are going to weather the storm of CLR and remain viable and attractive to “quality-focused” roasters who have bought their coffee in the past. Thousands upon thousands of small farmers who have been engaged in upping their game over the past decade are now looking at their operations going the other direction in a hurry. That puts them in a really precarious place and begs the question of how we will all deal with that reality
PS Just saw your response, Mark– well said.
Good on ya for being a roaster that is fostering relationships between grower coops and NGOs who can help them address CLR. Can’t help but note the irony–we are an NGO working to foster relationships between growers and roasters who can help them find a stable market for their coffees.
Thanks, in particular, for this passage:
In the specialty segment of the market, it seems that qualifiers like “quality-focused” have become redundant. Business models (worker-owned coops, direct trading relationships, etc.) and certifications are still important differentiators, but no longer enough (if they ever were) to make up for a cup of coffee that isn’t every bit as good as the other guy’s. There is just too much good coffee out there, and expectations are just too high, for roasters to get away with anything less than great coffee, regardless of what other commitments they may be honoring.
In the context of the decision farmers are facing about what varieties of coffee to plant, it means that it isn’t just the boutique microlot roasters who are concerned about how growers are balancing concerns about productivity and quality at origin, but anyone who competes in the specialty market. Ultimately, these decisions belong to farmers, but farmers who have direct relationships with roasters will certainly weigh roaster opinions heavily. Each roaster may weigh one consideration more than another, but none will be unconcerned about cup quality. The important thing is that they also manifest concern for the considerable risks farmers will assume if they plant traditional varieties susceptible to CLR.
Thanks Michael. See in line with some of the strategies a recent article based on work we did in 2007 in Central America … Interesting final finding, which is in line with much we discussed …
The role of cooperative business models for the success of smallholder coffee certification in Nicaragua: A comparison of conventional, organic and Organic-Fairtrade certified cooperatives
Tina D. Beuchelta1 and Manfred Zellera2
a1 CIMMYT, Km. 45, Carretera Mexico-Veracruz, El Batán, Texcoco, Edo. de México, CP 56130, Mexico.
a2 Department of Agricultural Economics and Social Sciences in the Tropics and Subtropics, University of Hohenheim, Institute 490a, 70593 Stuttgart, Germany.
Supported by policy-makers and non-governmental organizations (NGOs), coffee farmer organizations obtain organic and Fairtrade certifications to upgrade their coffee and, thus, increase returns to their members. Whether this and other upgrading strategies fit into the business model of the cooperative and lead to success are often not considered. This research aims to identify similarities and differences between conventional and certified cooperatives and the resultant impact on farmers’ incomes. We analyze the business models, upgrading strategies, and strengths, weaknesses, opportunities and threats (SWOT) of seven conventional, organic and Organic-Fairtrade certified coffee cooperatives and link these to members’ coffee gross margins. We use data from over 100 in-depth qualitative interviews and a household survey of 327 cooperative members in northern Nicaragua. Results indicate that cooperatives often apply the same upgrading strategies despite very different business models and SWOT. There are also many commonalities of SWOT among cooperatives but no clear-cut differences between conventional, organic and Organic-Fairtrade certified cooperatives. The qualitative comparison of coffee gross margins among the cooperatives shows no clear income effect from participating in certified coffee production and certified cooperatives. It indicates, rather, dependence of gross margins on yield levels, the business model and upgrading strategies of the cooperatives. Upgrading through certification seems only successful with a suitable business model and other upgrading strategies. Policies should focus on (i) increasing as well as stabilizing coffee yields, and (ii) on the institutional framework of cooperatives by offering strategic support, credit access, external auditing of cooperatives and the establishment of a functional national coffee institute.