Last month I published a post under the snarky title “It’s the market, stupid” along with snide Tweets like this one:
Hey, market: you want quality, heirloom varieties, water stewardship, farmworker rights? Create incentives for them. http://t.co/8mGFcRnJ2F
— Michael Sheridan (@coffeelands) April 7, 2014
I suggested that the best way to understand what happens (or doesn’t) at origin is to watch closely what happens (or doesn’t) in the marketplace. A few weeks later, SCAA Executive Director Ric Rhinehart opened the 2014 Symposium by making the same point, only better and more politely, when he suggested that coffee must command more value in the marketplace if it is going to deliver more value at origin.
“BACK-OF-THE-COCKTAIL-NAPKIN” CALCULATIONS
Working from “back-of-the-cocktail-napkin” calculations, Mr. Rhinehart estimated the economic contribution that coffee makes to the people who depend on it for their livelihoods at just $0.54 per day. Check his work here:
- 100 million bags of exportable coffee
- 13.2 billion pounds of exportable coffee
- average price of $1.50/lb.
- $19.8 billion of revenue flowing to origin countries
- 25 million families dependent on coffee for their livelihoods
- 100 million people dependent on coffee for their livelihoods
- $198/person/year of coffee revenue
- $0.54/person/day of coffee revenue
This rough estimate comes in well below the $1-a-day extreme poverty threshold, and neither takes into account the fact that only a part of the FOB price reaches farmgate (to say nothing of farmworkers) nor discounts costs of production–two measures that would knock the estimate down well below $0.54/day.
Yikes.
THE SOURCES OF COFFEE’S VALUE IN THE MARKET (AND ITS IMPACT AT ORIGIN)
Mr. Rhinehart’s comments–and the whole of Symposium–were focused on two related ideas: (1.) coffee’s future depends on industry’s ability to generate more value for the people who grow it and harvest it, and (2.) industry’s can most reliably drive more value to source if it can position coffee to command more value from consumers. Mr. Rhinehart’s contribution to the conversation was not, mostly, focused on coffee, but on what coffee might learn from wine in this regard.
He told the tale of two bottles of wine featuring the same grape varieties–one that retails for around $18 and another that sells for $275–and explored the factors that account for the difference in value. There is a clear difference in the intrinsic quality of the two wines, but the quality gap doesn’t fully explain the price gap, Mr. Rhinehart insists. Consumers pay different prices for them because they experience the two wines differently.
What constitutes a consumer experience is tricky stuff. It may be as much about perception as reality, which means we may need to pair the rigor of coffee science at World Coffee Research with something as robust in he area of consumer research.
Mr. Rhinehart suggests that information about the provenance of wine (and coffee) plays a central role in creating the perception of quality. But service and the consumer space are also critical aspects of the value storyline. Mr. Rhinehart owns one of the $275 bottles of wine that starred in his story. When he is ready to uncork it, he will do so with people he loves. And he seek just the right place for the experience–one that combines good hardware (the right glasses, the right decanter) and great software (a sommelier who knows and delights in his craft) in a physical space that will unlock the full value of that bottle of wine. Coffee, he argues, must make this migration from beverage to experience if it wishes to command more market value.
THE VOCABULARY OF VALUE
I heard in Mr. Rhinehart’s presentation echoes of the one that Oliver Strand of The New York Times delivered to a Let’s Talk Coffee audience in El Salvador last year. Like Mr. Rhinehart, Mr. Strand invoked the example of wine to illuminate a way forward for coffee. Mr. Strand focused his comments particularly on communication–the kinds of vocabulary that might help evoke the ideas of the consumer experience Mr. Rhinehart describes.
Mr. Strand held up the “three vees” of wine as an example of an effective and elegant approach to communicating value: vineyard, variety and vintage. He suggested coffee may opt instead for three Rs, and wonders whether it may have already two of them in roaster and region. (He thinks the emphasis on relationships that has characterized lots of the Direct Trade communications–the potential third R–misses the mark. He said, memorably, that knowing who raised his pig doesn’t make his pork taste better.)
Whether or not you agree with the three-R recipe, it seems clear that we are still searching for a vocabulary that will help us communicate more effectively to consumers the sources of the value we create together. Whatever words we do decide to use, we need to charge them with meaning and infuse them with the kinds of associations to which consumers will assign greater value.
THE ULTIMATE PRE-COMPETITIVE COLLABORATION?
Repositioning coffee to command more value is a decidedly market-facing affair. But that doesn’t mean it is only for market-based actors.
Coffee’s storyline, like coffee itself, starts on farms in the coffeelands. If that storyline is going to change, everyone along the chain, from growers to baristas, have to work from the same new script.
Besides, everyone in the coffee trade stands to benefit from enrichment of the consumer experience that effectively increase coffee’s value. It may be the surest way to address the issues I have spilled so much ink on here over the past few years–seasonal hunger, coffee leaf rust, water resource management, incentives for quality and, more recently, farmworker rights. This is an effort that should meet with chainwide cooperation, not just from different kinds of actors performing different supply-chain functions, but also among competitors performing the same functions. It may be the ultimate pre-competitive collaboration.
14 Comments
This article has really brought to light a lot of how I feel and think about coffee now. I used to be the “consuming for the effects” kind of individual to I want to sit down with a book and savor the brew. As for the 3 ‘R’s”. Perhaps they should be Region, Roaster, enRichment
Hi Michael;
Wow, rather sobering statistics. I would hope they are refutable because $.54 per day doesn’t sound too sustainable. The premise is clear though, somehow our models need to shift considerably to return a resonable value to the farmer, farmer families, farm workers and the communities that depend on coffee for their livilihood.
There are isolated and outstanding examples in the relationships that some roasters have developed with select farmers that most probably approximates a idealized working model. One of the drivers of this model is the current pursuit for high quality, nuanced coffee that is emerging as another model for coffee farmers everywhere. With the advent of microlots, Cup of Excellence auctions and the host of related market makers they have inspired, a vibrant and quality engaged group of coffee professionals and the positive response in the urban markets we are seeing a value shift. I feel that this process will continue to find a positive consumer market – taking coffee from the commodity exchange to a true specialty offering. As you have so clearly pointed out over the last several years, there is a lot of work yet to do.
Perhaps to round out the 3 R’s we could consider Ritual to be the missing ingredient. Region, Roast will get the product to the consumer and Ritual will provide the enhancement to the overall experience. I have seen the interest among our customers to all aspects of coffee selection, cupping, and preparation. I believe this is true for most roasters, especially in the larger urban markets. When it comes down to the final analysis it is that people love their coffee and can be taught that its value is far beyond the supermarket cans. That is what has got us so far down the road of Specialty and the conversations that are now including the realities of living and working in coffee country will help us to find ways to expand our desire to benefit all participants in the coffee world.
With best regards,
Scott Brant for the Coffeelands Foundation.
Scott:
Thanks for your reflection here. Your skepticism about the sustainability of coffee’s $0.54/day contribution to people who depend on it for their livelihoods has me recalling the four years I lived in Guatemala. Invariably visitors who trekked through the country’s breathtaking “altiplano” and encountered its rich indigenous cultures returned to the capital where I lived impacted by the experience. They were generally shocked by the level of poverty in Guatemala’s indigenous communities, where more than half of children under 5 suffered from chronic malnutrition, and the jarring contrast with the luxury cars and boutique shopping in Guatemala City. More than once they commented that the poverty in the highland indigenous communities and the inequality with elites in the cities was “not sustainable.” My snide stock response was this: “It’s been more than 500 years. It seems pretty sustainable to me.”
The reality that I have observed in my travels in the coffeelands since 1995 is that smallholder households combine a range of economic activities to make ends meet. Coffee tends to be the anchor crop in upland landscapes since it is the best (licit) cash crop option. The current confluence of factors in the coffeelands–climate change and coffee leaf rust, rising costs of production and increased cost of living and the gradual creation of economic alternatives–may not take growers out of coffee altogether, but it may change the way they think about coffee and the degree to which they invest their scare resources (their time and their money) in improvements to coffee productivity and quality. Tracy Ging of S&D Coffee captured this idea brilliantly in The Producer Issue of the SCAA Chronicle when she wrote:
Another very real scenario is that coffee keeps coming to market but less and less from smallholders and more and more from mid-sized and large estates better positioned to cope with production and market shocks and to achieve economies of scale.
The approaches you refer to — quality-based differentiation, microlots, Cup of Excellence, etc. — have be vitally important in helping cash-strapped smallholders squeeze more economic value out of their coffee. Ric Rhinehart, in a different article in The Producer Issue I mentioned above, writes of the promise of “fully realized trading relationships” based on mutual commitment to the principles of cup quality, transparency and mutual economic benefit. These kinds of trading relationships clearly represent an important part of the solution and an ideal worthy of emulation. But this segment is still smaller than any of us would like, and the barriers to entry are high for smallholders.
Michael
Hi Michael and all.
This discussion on value in the marketplace has engendered quite a number of thoughtful and insightful responses. Peter’s coffee fueled observations were particularly insightful and challenging. Yet I can’t help but reflect on the shifts that have taken place regarding the shift in consumer acceptance of higher quality coffee and the willingness to pay more for that quality. This shift has driven the entire “Specialty” industry or perhaps the industry has driven the shift – and it has taken place in a relatively short period of time. Given the level of discourse around the value equation that has been taking place in the Specialty industry it is clear that there are numerous, albeit small, endeavors to address inequity with our producer partners.
I am wondering if there has been any industry study of the effects that microlot auctions such as Cup of Excellence have had on the winning farms. Have farm workers also benefitted from the winning farms? If we are looking for examples of how increased income has or could be translated to worker benefits it might be a good place to look. Because the winning lots receive such an outsized return relative to the general market and because many of the winning farms have gone on to successful longterm relationships with roasters these winners could provide a window into the approach we might consider in shifting the value equation.
All the best.
Scott Brant for the Coffeelands Foundation.
I had the privilege of attending your “Millions on the Margins” farmworker panel at SCAA. The aspect of the panel that most resonated with me was actually a conversation I had with Erik Nicolson (of United Farm Workers) at the CRS reception. As a panelist he made call for moral outrage at the conditions farmworkers experience and the compensation they receive, and I agree that moral outrage is important to catalyze the “long march from awareness to action” you identified in you opening remarks. But, I also think that a new kind of investigative economic study is necessary to really understand why farmworkers, the people at the genesis of the supply chain, are getting such a bum deal.
Working backwards from where the $4 for your latte goes to see how much makes it to the farmer/farmworker is the wrong way to do it; it’s not a pie that can be sliced, it’s a bunch of pies that have to be sliced, stacked, and sliced again.
Dividing up the cost of a latte only serves to break down how retail items cover the costs of running a café. If the cost of one ingredient in one product that a café sells (as coffee is in a latte) is anywhere near 25% or 30% of the cost of that product, then that café will never survive. A latte is priced as it is to cover the cost of real estate, the espresso machine, electricity powering the machine, employees running the machine, and all the other line items on a café’s cost of operations.
I think people want to “trace their dollar backward” because that’s how it maybe feels most connected to us as consumers, but what we really have to do is trace the product as it moves upstream to downstream in order to understand who is making how much money off that product, and then we can determine if those value shares seems commensurate with work performed.
Tracing produce is easier because an apple stays and apple from when it’s picked to when it ends up in the bin at Whole Foods. With coffee it’s tricky because the weights and measures used to value it change every time it changes forms. These transformative thresholds are the slippery links in the supply chain. The thing that does seem most bizarre, as you mention, is that all farmworkers are paid by the piece, and the price-per-piece is always derived from the C market price, which is tethered more closely to supply, demand, and speculative forces than it is to physical coffee. The people making the most money off coffee are not in fact making money off coffee itself, but rather of shifting values of coffee, hedged as trades on the futures market.
Let’s say a worker picked 60kg of coffee a day for 6 days a week for 12 weeks (4,320 kg). He would probably be paid slightly different amounts for those kilos over the course of 3 months, but all according to the C market price at the time he’s picking. By the time that coffee gets processed and packed on a container to be exported and traded, the C market price will be something completely different, and the same exact coffee will have a different value, not just because it’s been processed to a different form, but because the arbitrary value assigned to coffee will have shifted.
Even if the market price were relatively stable, depending on the supply and demand for coffee from that region, the differential for that particular quality of coffee could have skyrocketed or plummeted. The very same physical product assumes a wildly different value, not just because it’s dried green coffee versus freshly picked cherries, but additionally because there are speculative forces (funds) driving the C market price which dictates the base to which the actual “supply and demand” regional differential is applied.
I think it would be fascinating to follow a volume of coffee, say 100,000 kg of fresh cherries picked during the peak harvest on a given farm, and trace that same physical volume all the way to retail. First, calculate how much it costs the owner to pay farmworkers to pick it. Once that coffee becomes parchment and is, say, 60,000 kgs (40% weight loss), see how much that same volume fetches when a farm owner sells it to the coop/mill. Once it is milled and becomes green coffee, say 48,000 kg (105,600lbs, or almost 3 37,500lb C contracts, a 20% weight loss), see how much the coop exports it for and see how much a roaster pays for it from an importer (or direct from the coop acting as exporter). Then, once that roaster turns it into roasted coffee, say, 38,400 kgs (20% weight loss), see how much they’re selling that coffee for per pound, and multiply that by 84,4480 lbs (38,400 kg).
I haven’t seen anyone do anything like that, but I think it would be doable now because so many roasters roast large volumes of single origin coffee, whereas when the price per pound of coffee is for a blend of several different coffees it would be impossible.
It seems like something to this effect would give a clearer sense of how much every player in the chain is netting for the same physical volume of coffee as it is transformed across physical forms and assigned values. It might be most straightforward to do it in Panama, or some other place that uses the USD to avoid the added confusing layer of currency conversions. (And certainly it wouldn’t work in someplace like Costa Rica that pays pickers by volume not weight!)
As Miguel Zamora (of Fair Trade USA) commented (both on the panel and at the FT USA reception), if you don’t buy producers’ coffee and pay them handsomely for it, not even the most well intentioned farm owner will have any money to do the great things he/she wants to do for workers. Even though tracing the consumer dollar backward doesn’t really work for coffee, it is that consumer dollar that informs all the other payouts everyone receives, and perceived value is certainly the strongest driver determining the destiny of the consumer dollar.
Rachel Northrop
whencoffeespeaks.com
Rachel:
Thank you for this generous comment. And for the reference to reslicing the pie. It seems to be too good an analogy to pass up in this conversation. While I agree with the premise of Ric’s talk–that we should all work to bake a bigger pie (or, as George W. Bush once said, “make the pie higher”)–I also agree with you that it would be helpful to have a better understanding of how the pie is sliced now. And how the sizes of the slices may vary from one business model to another. Specialty is a big tent that includes very different business models that bake pies of different flavors and slice those pies in different ways. We are working in our projects to understand what flavors are right for smallholder growers and how the sizes of the slices vary from one model to another so we can communicate them to growers seeking counsel on how to position themselves for the market. But it is also important to note that there are roasters right now mapping how and where value is created and captured in their supply chains–in other words, how good and how big the slice is for each actor in its own supply chains. I deliberately focused in this post on coffee’s efforts to “make the pie higher,” leaving how it slices the pie for another day. I will participate in one of those value mapping exercises next month and hope to post something here soon that gets close to what you are proposing to do.
Stay tuned!
Michael
Hello Michael –
As a fellow wine drinker, I’ve had numerous conversations over the years with Ric and others in the industry regarding consumer perspectives on the value of wine vs coffee. It’s an attractive comparison, given the similarity of taste complexity, the importance of terroir and the seeming “brotherhood of fermentation”. But at the end of the day, I think that the comparison is driven by a kind of “bottle envy” on the part of the specialty coffee community and we do ourselves a disservice by continuing down the path of wishful thinking. “If there are so many similarities, why the price point disparity? Why can’t consumers see the same value in cup of well-brewed single origin as a balanced Pinot Noir?”
A few thoughts:
* Coffee and wine are bookend beverages to the day. The vast majority of coffee consumers see their morning cup as a kind of engine to help start their day while many wine consumers will use a glass or two to apply the brakes. The presence of mind and the time allotted to each of these beverages is quite different. Coffee is very often consumed within a flurry of activity when time seems compressed while most people will savor a glass of wine at the time of day that is dedicated to “unwinding” and the mood is a bit more contemplative. Very few people I know carve out enough space in their morning to have a religious experience over a Chemex of geisha. The value that we give to each of these beverages is directly related to the mindfulness that we afford to the experience. As an industry, we can try to convince people to slow down and smell the coffee, but culturally speaking, we are a society that appears to increasingly prefer the express lanes.
Yes, there is a demographic out there that dedicates a good amount of counter space in their kitchens to brewing paraphenalia, but are they enough to tip the scales of prosperity in favor of the producer? Are we continually chasing the ether-level of coffee quality for our own purposes or that of the producer?
* The coffee industry has been a bit conflicted in our own approach to consumer education. While on the one hand we celebrate the unique pear and persimmon notes in a micro-lot from Honduras, much of the growth of the specialty coffee industry has been driven by the sale of milk-based, flavor-enhanced, frothy drinks in which coffee plays a minor supporting role. We have successfully raised a generation of coffee drinkers who now think of coffee as something directly related to the magic of a steam wand. As the recent consumer survey conducted by S&D indicates, we have likewise nurtured a group of consumers toward the hand-made, pour-over experience, but they still want their coffee sweet.
* Our relationship to the land where our product is grown is quite different from that of a wine producer. Most often a winemaker has a direct relationship to her or his own vineyard, and is willing and able to make the adjustments and investments necessary to improve their crop. Grapes are not sold as a commodity and the investments made by the producer will almost always be reflected in the final price point. Not so much in the case of coffee. I recently met a 90-year-old Kenyan farmer who told me that coffee is the only crop he has ever grown that at the end of season, after many months of labor, investments in inputs, hiring help for the harvest and paying for transport, only then does someone arrive to tell him how much they are going to pay for his efforts, without the benefit of negotiation. “Is it any wonder that my children do not want to become coffee farmers?”
* Cultural baggage. Like it or not, we have inherited a societal attitude toward coffee that places it high on the value scale, but low on the cost scale. To change these inbred beliefs, we will need to engage in not only better marketing but also a bit of behavioral science, to help shine a light on the romance of coffee. We LOVE coffee because we’re engaged in the story of coffee, the beauty of the lands where it is grown and the struggles of the people who grow it. But let’s face it – we can become a little full of ourselves. Like any enthusiastic group, we risk sacrificing relevance on the altar of our own enthusiasm. For most people, the romance of coffee is limited to opening a bag, pouring some water and flipping a switch. How we negotiate that great divide will determine whether we are viewed as cultural effetes or as a bridge between producer and consumer, bringing real value to both. The trick will be in striking the proper balance
between the expectations of our industry and the tolerance of the public to pay increased prices for foodstuffs that have traditionally been viewed as “staples”.
* There are only so many ways to slice a pie. It seems that most discussions regarding price disparities to the farmer and how to create resilient producer communities revolve around ideas of how to communicate value to the consumer, resulting in their willingness to pay a higher price. But in reality, would these higher prices actually be passed on directly to the farmer? I think we may need to do a bit soul searching as an industry before we actively promote this to the public. As an alternative exercise, I would propose that the industry make its own value assessment of coffee as it moves through the supply chain. How many of us would be willing to adjust our own profit margin to ensure the viability of the coffee farmer and thus the sustainability of the economic coffee community? If everyone were willing to shave, let’s say 2-3% off of their margin, it would mean that producers would receive a much larger slice of the overall coffee pie, which would finally deliver value to the very beginning of the chain, and arguably its most valuable link. We might actually be able to achieve some level of equilibrium within our system that has been seriously out of whack for quite some time.
Again, these are some random thoughts after a few mugs of morning brew. There are certainly holes in some of these theories to be sure, but that’s what I love about coffee – no one can truly be an expert.
Peter Kettler
Director/ Radio Lifeline
Peter:
Wow. This is an extraordinary reflection. Thanks for sharing it.
There is a lot here. I want to reflect on it for a while longer before posting a full response.
Meantime, I do want to address your last comment, which begins: “There are only so many ways to slice a pie.” In writing this post I was deliberate in focusing exclusively on the idea of creating more value and avoiding comment on how that value may be distributed along the coffee chain. I was hoping someone would raise this point in the comments, and I am glad you took the bait.
You point out–quite rightly, I believe–that even if specialty coffee were successful in repositioning itself in the marketplace to command higher prices, it wouldn’t necessarily mean that those higher prices would be passed on directly to growers. If we look at today’s market and see how roasters and other downstream actors are slicing the pie, we see significant differences. In many cases, returning value to origin does not appear to be a particular priority. But there are roasters today in different segments of specialty working actively to redistribute value along their supply chains with the explicit objective of returning more to growers. The upper bound of the willingness of their respective market segments to pay represents one limit on their ability to do so. Another may be, as you suggest, their reluctance to narrow their own margins in order to widen those of growers. Here I would cite another outstanding Symposium speaker, Al Keating of Coffee Supreme, who asked whether generosity is a principle you apply to your actions regardless of your economic situation, or something you start practicing only when you can afford it.
It is not enough for industry to generate more value in the marketplace; it has to do so with the objective of returning more value to origin, and the commitment to build an infrastructure of equity into the coffee supply chain where it may not today.
This is precisely what I valued so much about Ric’s keynote–he framed the whole of Symposium and the effort to reposition coffee in the marketplace as a strategy to return more value to the people who grow and harvest our coffee so they keep the good stuexist ff coming. Will everyone share that motivation? Of course not. But with its current margins, specialty coffee may be able to return only marginally more to growers even if it slices the pie more equitably.
Michael
Good point about the value creation at the consumer experience and how much of that additional value would actually go upstream to farmers. And even if so, would the ROI for farmers be much better when we consider additional investments on quality?
And when we think about farm workers, how do we also secure that if we can create additional value at the consumer level some of that will actually arrive to farm workers? Better prices/more value to farmers is a necessary but not a sufficient condition for better conditions for farm workers. We need to include/create mechanisms and incentives that might not exist (or are not that common) in coffee yet to secure better conditions for workers too. And let’s make sure that workers have a seat at the table too when we discuss and create those alternatives.
Nice discussion
I think Miguel brings up some excellent points. Our reflex in consuming countries is the view that problems of poverty, particularly in so-called “developing countries” can be solved by an influx of cash. While financial resources can be a catalyst toward effecting positive change, how they are distributed and ultimately utilized can sometimes create another set of unexpected challenges. Our work at Radio Lifeline is based around the idea that access to consistent, high-quality information can be one of the most valuable forms of currency in an increasingly connected world, allowing producer communities to adapt to change in a way that reflects their own unique cultures, values and local economic opportunities.
I would also like to give a resounding endorsement to the idea that producers need to have a strong presence at any table where their future is being discussed. We need to stop looking at them as “beneficiaries” and more as “partners”.
Thanks, Miguel and Peter.
Miguel made this last point memorably during the farmworker panel at this year’s SCAA Expo when he held up farmworker participation in any industry efforts to improve conditions on coffee farms. He told the audience that industry participation is essential if the conditions are to improve for coffee farmworkers, but was quick to add: “We can’t create sustainability for farmworkers. We have to create sustainability with farmworkers.”
Michael
Readers interested in the discussion here should be sure to check out:
(1.) This post from Stephen Wade (@_terroirism_), who wonders whether specialty coffee is selling itself short. It was published last August but feels like a comment to this conversation.
and
(2.) The conversation that started here after our friends at Daily Coffee News (@DailyCoffeeNews) republished this post.
Michael, et al:
Sorry to be so late coming to the party. I wanted to take a moment to weigh in on the discussion above. First of all, please forgive the use of the wine analogy yet again, but it is one that is personally resonant, and not one intended to present a marketing case for coffee. There are many structural and traditional differences between coffee and wine that make modeling one market on the other an unlikely path to achieving the larger objectives.
I was actually most interested in floating three distinct concepts in my presentation, and clearly I missed being as lucid as I wanted to be. Please indulge me and let me try again here. First, I wanted to point out that while most of the topics addressed in the Symposium this year were around drivers in the consumer end of the market, this should not be construed as a lack of concern about conditions at the producer end of things. I had hoped to make it abundantly clear that the “size of the pie” is ultimately driven by the consumer’s willingness to engage in a value proposition around coffee. If we want to grow the share of the pie for anyone in the value chain, our options are limited to either redistribution of returns to the benefit of one and the detriment of another, or in classic free market rhetoric, we can “make the pie higher”. I strongly advocate for both of these, and wanted to point out the pie growing piece clearly. I suppose I am not alone in believing that we have not yet grown the pie to anything like its largest possible size, and the focus of Symposium this year was on pushing that growth.
Second, I wanted to point out that even if we dramatically increase the pie dimensions, this alone will not solve the issue for producers. Doubling the value of coffee in the market and leaving the distribution exactly as it is changes things in the right direction, but not nearly enough. If the daily income for farmers doubles from $.54 to 1.04, those farmers remain well below the poverty level. It is not too hard to determine that the capacity of the market to absorb coffee at two or three times the current prices has its limits, and it is unlikely at best that market value could be increased sufficiently to lift millions of farmers out of the sustainable poverty trap they are in. The intended implication here is that other strategies, including a hard look at the distribution of rewards (and the price/value relationship of risk) are necessary to achieve any meaningful progress.
At this point I should interject that we have presented on more than one occasion a little show titled “Where Does the Money Go?” which looks at the costs and margins associated with the consuming side of the coffee value chain. I can commit to refreshing this for future presentation as it gives a more dispassionate recounting of the current distribution picture that gets past the “$4.00 latte” and the “50 cups per pound” positioning that suggests that all coffee retailers are rapacious profiteers at best. This should not be construed to mean that I believe the current distribution is equitable, but rather that truth and objective reality are great places to start the conversation from.
Finally, my intended third point was that we must make a serious effort to examine the business model that we currently employ, and in light of real market forces, longer term outlooks and with a commitment to just and ethical practices on the part of all the players, explore how we can change these systems. We cannot merely complain, nor can we be complacent. We need to act, and we need to act thoughtfully and from the most informed position possible.
Thanks for the space to comment.
Ric:
Now it is my turn to apologize for not responding sooner.
Thank you for making the time to weigh in here. From where I sat during your Symposium address, each of these three points came across loud and clear. If I mischaracterized them in any way, I apologize.
I did focus in my post primarily on the first message (making the pie higher), since it seemed more aligned with the rest of this year’s Symposium content than the other two. But that doesn’t make the other two any less valid.
I agree that marginal increases in coffee income for families earning 50 cents a day from the product that is responsible for our employment is not going to pull large numbers of growers out of poverty.
And I also agree that some careful collective thinking about the prevailing business models in coffee is in order, particularly–in keeping with the subject of this conversation–about how those businesses create and distribute value to business partners upstream.
I believe based on my experience with growers over the past decade that an awful lot of what happens (or doesn’t) in the coffeelands depends on what coffee companies do (or don’t do) in the marketplace. In my work I have seen business model innovations that create more value, distribute that value more equitably and transparently, and mitigate grower risk more effectively. By all means, let’s act, but perhaps first we should do some navel-gazing to inform that action.
Michael
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