The Blog

view all

404. “Meaningful economic benefit”

2014-04-01 Comments Off on 404. “Meaningful economic benefit”

Tracy Ging, Director of Sustainability at S&D Coffee, has contributed an article to The Producer Issue of the SCAA Chronicle titled “Sustainable Coffee and Meaningful Economic Benefit.”   It seems to be almost an editorial afterthought, appearing near the very end of the issue and amounting to barely a full page of text.  Bu the author packs a lot into that lone page.  I will begin to unpack it here.

Drilling Down

What gets lost in the macro-view: livelihood challenges, soil degradation, water strain, land use pressures, and rust disease.

Farmer behavior will go a long way in determining the possibility frontier for specialty coffee.  This article unlocks so much insight precisely because it drills down to the farm level to explore and explain some of the factors that drive farmer behavior.

There are acute risks to the coffee trade lying below what Tracy calls the “macro-view.”  But there are also enormous opportunities lurking there: increased quality, improved traceability, direct trading relationships, terroir and origin.  Market-based actors who want to seize these opportunities would be well-served by a better understanding of the farm-level dynamics that enable or inhibit them.

Opportunity Cost

It is not always in the farmer’s best interest to do more on the farm.

A farmer may stay in coffee regardless of market conditions, riding the highs and lows as he always has. However, it is unlikely that farmer will stay focused on coffee.

Tracy reminds readers who may be tempted to think otherwise that “coffee is not the center of the universe.”  This is especially true for smallholders who are structurally disadvantaged and beset on all sides by the kinds of threats she identifies.

We are acutely aware of this reality, but we are an international development agency working in the coffeelands to help smallholder farm families earn as much income as they can while conserving the natural resources they need to sustain that income over time.  The best strategies to achieve these outcomes may or may not involve coffee.  In fact, in some areas of Central America we are working to help families hard-hit by coffee leaf rust (CLR) to diversify their farming systems and rebalance their sources of income and food.  This will almost certainly mean less reliance on coffee.  And just as certainly mean better livelihood outcomes for farmers and their families.

It is uncommon but vitally important for coffee roasters and other market-based actors to understand this reality and move to embrace what Tracy calls a “broader, more inclusive perspective” on the coffeelands.  A perspective that may be more open to the idea that coffee will drop down on a farmer’s list of priorities or lose ground, literally, to other land uses.  At the heart of this perspective is the idea of opportunity cost.

The opportunity cost of coffee is reflected by the difference between what a grower can earn by farming coffee and what she might make from other economic activities.

In Ecuador, where I live, the minimum wage for agricultural labor is $15 a day.  In the poorest areas where labor is abundant, the going rate may be closer to $10, but in the vast swaths of the countryside that are emptying out, labor is scarce and $15 a day is the going rate.  Employment at that level is not available year-round, but when it is it will compete with a coffee farming for a grower’s time and attention.  And when diseases like CLR drive down production, or when the futures market hangs out in the $1/lb. neighborhood, growers may not abandon their coffee, but they will almost certainly neglect it.  This kind of on-again, off-again approach to coffee may make economic sense for growers, but at a time when the marketplace is demanding higher quality and seeking year-on-year trading relationships rooted in mutual commitment to quality, it can be a source of frustration for buyers.

The opportunity cost concept manifests itself in more nuanced ways, as well.  The area where I work in Colombia is characterized by a much higher degree of specialization in coffee.   To borrow from Tracy’s language, Nariño is an area where many coffee-growing households do believe coffee is the center of the universe.  And where few have (licit) economic alternatives more attractive than coffee.  In this context, the idea of opportunity cost may be less relevant in the decision about whether or not to focus on coffee (farmers will almost certainly do that) than on which coffee variety to plant.  Nariño has not been immune to the CLR epidemic that drove Colombia’s production down steeply between 2008 and 2012.  There and throughout Colombia, the opportunity cost of growing traditional, rust-susceptible varieties like Caturra is high when compared to resistant hybrids like Castillo.  The market may lament the disappearance of the traditional varieties that make Colombian coffee so extraordinary, but the decision to plant Castillo made on hundreds of thousands of farms across the country in recent years reflects what classic microeconomics would call “utility-maximizing” behavior.


Currently there are two main models for making coffee more economically compelling: pay more or do more.

There also seems to be a strong narrative in our industry that quality, and subequently quality incentives, are the paths toward economic sustainability.  Is that necessarily true?

If, as Tracy (and I) suggest, coffee growers do make “economically rational” decisions, then it stands to reason that coffee buyers can change the logic by which those decisions are made.  By altering the factors in the equation.  And aligning interests more closely along the chain.

The dominant approaches to changing a farmer’s calculations have been, as Tracy suggests, to pay more or do more.

Doing more has proven mightily complicated for most market-based actors.  Doing development work in the coffeelands requires the kind of relationships, resources, patience, skills and/or depth-of-commitment that few in the marketplace possess.  I could point to examples from microroasters to megaroasters of effective examples of doing more, but these remain the exception rather than the rule.  Perhaps more importantly, when doing more doesn’t lead directly to improved income at the farm level, it is not effectively altering the incentive structure that led growers to focus less on coffee to begin with.

The more common approach by far is paying more, mostly in the form of price incentives for cup quality.  As Tracy suggests, despite the ascendance of quality-first direct trade, the verdict on that approach is still out.

Farmer Voice

We have to understand what “meaningful economic benefit” means, and we need the farmer perspective for that…Only a farmer can really define what’s “meaningful” to them.

Ever notice how the most radical statements also seem to be the most self-evident?