Direct Trade: Going Straight to the Source

By Shanna Germain

Direct trade has long been a hot button in the specialty coffee industry. Ask 10 coffee people what the phrase means, and you’ll get 10 different answers. Listen in at a roasters’ roundtable on the topic, and you’ll likely come away more confused than when you went in. Troll the forums and you’ll find not only differing opinions from different people, but also that people’s opinions are constantly in flux.

As with so many important issues in the specialty coffee world, direct trade is neither intrinsically good nor bad. It is complicated, ever evolving and potentially life-changing for producers, roasters, retailers and consumers.

Here, we ask a panel of direct trade buyers to speak frankly about their experiences, and to give us a glimpse into the potential benefits, detriments, difficulties and opportunities that make up the complex topic we know as direct trade.

The Panel:

 

Geoff Watts, Director of Coffee, Intelligentsia Coffee and Tea

 

 

 

Molly Laverty, Producer Relations, Coffee Bean International

 

 

 

Mark McKee, Passionate Harvest Coffee

 

 

 

 

Spencer Turer, Director of Coffee Operations, Coffee Analysts

 

 

 

Q: Can you first talk a little about your experience with direct trade—how long have you been doing it, to what countries, how did you get started, and what was your role in the process?

Geoff: The foundations for our direct trade (DT) model were laid in 2001, beginning with trips to Mexico and Guatemala that were mostly about gathering information, getting to know the landscape and learning more about the nuances involved with coffee production and trade. By 2002, we were actively building our DT strategy, and the start of DT as we know now it can be traced back to a project we started with a single farmer named Mauricio Rosales in 2003 in Huehuetenango, Guatemala. From that point onwards it expanded quickly, and we began investing in two or three new countries each year. By 2008 we had developed a network of over 30 farms and farmer groups in 18 countries.

The motivation to develop a DT model came from frustration over our limited ability at the time to access the kind of coffees we really wanted to purchase and sell. As a roaster the thing you crave most of all is great raw material—exceptional quality green coffee. Regardless of how skillfully we are able to roast coffee the upper quality limit will always be defined by the quality of the ingredient—the green coffee itself. That sets the parameters. So if the goal is to achieve the best quality possible, that’s the place to start. Once we started traveling regularly to producing countries and visiting farms, it became clear that we could really open things up by taking an active role in collaborating with farmers to help improve green coffee quality at its source.

The other major motivator was the idea of complete traceability and repeatability. Prior to developing our DT model I’d say our sourcing efforts were more like treasure hunting—we would simply look around at what was available and try to find something special hidden amongst many average coffees. That approach isn’t really scalable, and comes with a lot of drawbacks. It is somewhat hit-and-miss, hard to sustain in the long term, and tends to lead toward a sort of quality middle ground where most of the coffees available to you each year are just “ok.” That’s not where we wanted to end up, so we decided to invest in working actively in producing countries to develop our own network of farmers and farmer groups. I was both the chief architect and operator of the model at the time. What started as an impulse and an idea turned somewhat quickly into a full-fledged system for coffee sourcing. But it isn’t a static system by any stretch—it continues to evolve at a rapid clip.

Molly: I was introduced to the direct trade through by boss and mentor, Paul Thornton. Paul has been in the industry for a long time and has long dreamed about the possibility of introducing a direct trade buying model to Coffee Bean International. After talking with his colleagues in the industry, Paul decided to try a direct trade buy from the San Ignacio region in Peru and contracted me to help translate and meet the producers. One year later, I was hired full time by Coffee Bean International in July 2010 and have been working with Paul to increase the size and scope of our direct trade program. Currently, we buy direct trade coffee from Peru, Nicaragua, El Salvador, Guatemala, Colombia, and Tanzania—with more origins on the horizon. This past year has really been a critical one in developing our program, and we have managed to generate a lot of interest with our customers, which will allow for more volume in the future.

My role in direct trade is to act as a liaison between our company and the many producers that we work with. It is important to spend a significant time at coffee origins to make sure that the producers personally know whom they are selling their coffee to as well as leave time for in-depth discussions on price and acquisition of coffee.

I visit each of our direct trade farms at least twice a year and work with the producers or the producers’ representatives (in the form of cooperatives, usually) to agree on price, quantity, and quality of coffee desired. Additionally, I track the improvements that the producers have made to their farms to increase coffee quality (new mills, washing stations, land, fertilizer, etc.) and improvements they have made to the quality of life in their communities (improved living situations for pickers, daily meals, educational support and infrastructure improvements for the surrounding community, etc.). When I am not traveling, I am supporting our green buying team at the office and work with our marketing and sales teams to make sure that direct trade coffee is presented in an accurate and inspiring way.

Mark: My passion for direct trade coffees began 11 years ago as a coffee specialist for Tully’s Coffee based out of Seattle. Spending time researching coffee, how it is grown, harvested and the small return that farmers receive. A few years later, I met Larry and Aarlie Hull, owners of New Guinea Traders, learned about their work in Papua New Guinea and how it created sustainability, coffee education and provided for basic needs such as literacy programs for women, water wells and basic education. I then began working in Yemen, setting up a coffee roasting operation and café, one of the first things I learned was that these people had no idea what quality coffee was and had little information to assist them on improving their coffee.

Nine years ago, I formed a company called Passionate Harvest, focused on bringing these growers together with roasters, networking and most of all, educating the farmers. Along with this, I added a consulting end to my business for roasters, teaching them how to create a direct trade program and how to educate their customers about direct trade coffees and the significant difference it makes. I am currently working on coffee projects in Thailand, directly tied in with the farmers. Thailand is a country that is not often recognized as a coffee-growing region and because of that is often neglected or abused when it comes to pricing. Currently, as an independent consultant, I work with Dominion Trading Coffee who is working to set up a direct trade program once again in the Yirgacheffe region of Ethiopia. In the past, they had a direct trade model established but due to the recent establishment of the ECX it has made it difficult to continue. I also consult for Morning Glory Coffee out of Indonesia; we are establishing a direct trade model in West Java and other portions of this coffee-growing region. The final area is the Yunnan province of China with My Brothers Cup based out of Mississippi. Other areas coming up soon are Rwanda with Well Coffee out of Dallas.

One of the keys is education. We use agronomists in all of these areas to assist not only in creating a quality coffee, but also in protecting the environment. This is especially important in places like Thailand where “slash and burn” farming took place for many years. They also receive education on coffee cupping, learning how to evaluate and even roast their own coffee. The roasting aspect not only brings a quality issue but also helps them understand the costs involved in roasting coffee and why the coffee they sell at $3 a pound green is sold at stores for $15 a pound.

Spencer: While working for a green coffee importer into the North American market, I had opportunity to work with specialty coffee traders and roaster green coffee buyers who travelled to origin countries and negotiated green coffee purchases on their own. These origin purchases were then transferred to our company and I would have the responsibility of executing the green coffee purchase, organizing the financing (if required), completing the logistics for import and domestic warehousing, then delivering product and financing the trader. The customer/trader was responsible for the coffee quality and resolving any issues or problems. I believe that this supply operation was created simply because the customer/trader was not a usual importer and lacked the financial strength to risk origin purchases; however, they wanted to retain the buying relationship, control the negotiations and quality, and be able to represent their customers to the producer and represent the producer to their customers. I believe this to be Direct Relationship, even though it is most often described as direct trade.

As an importer, I conducted direct trade with producers and cooperatives on a regular basis, as this is the usual function for coffee importers. Often this coffee was purchased for a specific customer; however, these coffees were often secured because of quality, price, availability and the desire to maintain strong positive relationships with producers and cooperatives and not with exporters.

Q: How do you define direct trade? Do you think it’s a benefit or drawback that there doesn’t seem to be a consensus on the definition of direct trade?

Geoff: At its most simple I’d define it this way: A proactive and mutually beneficial collaboration between coffee farmers and coffee roasters aimed at increasing the quality, value, and consistency of coffees produced, where the farmer and the roaster are committed to working together transparently and long-term. But that doesn’t tell the whole story. I like to think about Intelli and the farmers we work with as stakeholders in a joint effort to improve the state of coffee. There is a certain kind of symbiosis when it comes to quality in coffee and the way it comes about. As roasters and retailers we need great coffees to sell so that we can compete based on quality rather than getting involved in a price-driven race to the bottom. Farmers need consistent and reliable markets for their coffees, and a means to differentiate them. Many farmers have the desire and the ability to produce higher quality coffees, but they don’t do so because the cost-benefit analysis doesn’t work out in their favor. There are many significant farm-level costs involved in producing better coffees, and unless there is a reliable mechanism that allows farmers to recover those costs and profit from their investment in quality it is just too much of a risk, as the market can be erratic and whimsical. But when there is a partner on the other side who is consistently willing to pay a premium for better quality it takes the gambling element out of the equation. That’s part of our role in the DT partnership. We help build the market for quality, we support the efforts of the farmers in our network by making commitments to buy their coffees well in advance of harvest, and we communicate with them all year long to make sure we are aligned in our expectations.

The other part of our job is to assist in helping farmers achieve their quality targets and keep pushing the coffee quality upwards. That assistance can take many different forms; sometimes it means capital investment in infrastructure, other times it is a matter of transferring knowledge from one farm to another. Some of the events we hold each year (like our annual Extraordinary Coffee Workshop) are part of that effort—getting three dozen accomplished farmers in one place for a few days to share information and problem solve as a group can yield amazing results.

Another aspect of it has to do with transparency and minimizing costs in the supply chain that are not adding value to the coffee. Our goal has always been to enable maximum return to the farmers we work with, because we understand that they need to be making money in order to continue investing in their farms, making quality-related improvements, and expanding their production. So we try to reduce costs that aren’t absolutely necessary and make sure the farmgate price (price to the farmer/primary producer) is always maximized and protected.

I’d also say DT is a trade relationship that tries to mitigate the role of the C market and de-commoditize coffee by using mechanisms not related to global supply and demand to determine its value. By looking at actual production costs and actual intrinsic quality, and by thinking about multiple years at once rather than treating each season independently we can find ways to value coffees that are beneficial for the farmers and ourselves and aren’t as dependent on the C market as they would otherwise be.

As to whether it is a benefit or a detriment that there is no common definition, I have mixed feelings. On the one hand, DT as we practice it was not originally created to operate as a general certification system. There are plenty of those already around in the coffee industry, probably too many. It was really just a face that we gave to an approach to working with coffee that we’d developed over many years of trial and error and consultation with farmers. We’d been doing this work for some time before we applied the phrase direct trade to it, and the motivation for giving it a ‘name’ came from the fact that we were often answering questions about our sourcing practices and found that most people preferred a simple answer rather than a detailed one. I used to have five- and 10- page documents on our website that talked about all of the nuances involved in the way we worked with farmers, but few people would take the time to read them. They wanted something more concise to help point them to the coffees in our lineup that were the most sustainable and most deserving of their support. So we coined the term direct trade and began applying it to the labels of the coffees that fit the criteria. We published some explanations of those criteria, and for years I gave lectures at various coffee industry events to talk about what direct trade meant and what the model was all about.

While we have our own set of metrics to determine which coffees qualify, it was never the intention that it would become yet another certification system that could be outsourced or commoditized. In some ways it shouldn’t be, as it was originally designed as a sort of “anti-cert” in response to what I saw as some of the flaws in certification systems that are necessarily generalized so that they can be applied universally across a whole range of contexts, countries, and products. This was meant to be a tailor-made and highly specific approach to working with coffee farmers so that we could both realize our individual and mutual goals regarding coffee quality and profitability. The whole point was that there WAS no certification that worked equally well for every roaster, farmer or farmer group. We weren’t trying to create that, and I’m not sure such a thing could exist given the staggering and profound differences between producing countries, individual farmers, and individual companies. We wanted something that could take into account those differences and be relevant and effective across many individual contexts while still leading to the same place—improved quality, full transparency, full traceability, and genuine sustainability.

I’m generally a believer in the idea that once you define something you condemn it to a static state and hinder its growth and evolution. Since coffee is anything but static, a model that was locked into place based on the conditions at the time of its inauguration would become a dinosaur rather quickly. Looking at our own example illustrates this concept…DT was founded in the early part of the last decade, around 2002–2003, while we were still in the throes of the ‘coffee crisis’ that was ruining the livelihoods of farmers worldwide. A large chunk of the producing world was still not on the Internet in any meaningful way. No one knew what Cup of Excellence was, we were all still brewing into airpots, and most coffees were being sold somewhat anonymously by origin name, without farm details of any kind. There was a massive disconnect between the producing world and the consumer market. Things have changed a lot since then, mostly for the better, and there is more connectivity than ever before.

The way we operate DT today is not the same we did in 2003, and that is a good thing. It is better in every way, and more responsive to the needs of both the farmers and those who consume their coffees. And I am certain that 10 years from now it will have grown and evolved from where it is right now. What matters is how it serves the needs of all those concerned—the farmers, ourselves, our customers, and those who live in and around the communities where the coffee is grown.

On the other hand, I do think there are examples out there of the phrase being misused or inappropriately applied. Over time it has taken on some currency and I’m sure there are people who are using it for no reason other than that they see it as a good marketing tool. That’s bound to happen, and there really isn’t anything we can do about that. That’s why I always advise consumers to pay less attention to phrasing and sloganeering and instead focus on looking for evidence of authenticity. Words are just words, after all. In our case we could call it something else and it wouldn’t matter, we’d still be doing the same kind of work and following the same principles. For that reason it makes sense to talk about DT as a philosophy more than as a system or a specific model. Whether it has any significance or yields any positive results depends solely on how it functions in practice and on all of the work that is done in pursuit of the idea. The results are what matter, and I can say with certainty that the intended results will not manifest on their own.

It takes a lot of work to make a coffee sourcing program fulfill all the promises set out in the DT philosophy, and the work is ongoing. It’s not a matter of flying in, taking pictures, filling out some forms, shaking hands and making some vague commitments. There is much more to it, and sometimes that gets lost when the terminology takes on a life of its own.

Molly: Our brand, Project Direct, is a coffee buying philosophy using a “direct trade” model. Direct trade means fostering relationships directly with coffee producers, where producers are paid an incentive to improve the quality of coffee and are given another option for selling their coffee. By engaging with the producers, we can exchange ideas about what quality means to Coffee Bean International and our customers and how to work toward continuous improvement. Direct trade is not a certification of fair trade; rather, it is a guarantee that the producers will be paid as agreed upon in our transparency contract, and all receipts will be audited. We commit to multi-year partnerships with producers who embrace direct trade and have pride in their product, ensuring sales of their coffee year after year and, thus, a reliable income.

While there is no official definition of direct trade, the roasters who are actively participating in the buying model share similar principles. These principles focus around coffee quality, supply chain transparency, farm and regional stability, tiered pricing (based on quality), sustainable practices, and consumer education. The coffee industry is a close-knit group, and we have been talking to other roasters throughout the whole process of developing our direct trade buying philosophy. Currently, we are working with one direct trade roaster to align our auditing and reporting methods to create more of an industry standard for representing direct trade coffee.

Mark: To me, direct trade is coffee coming directly from growers, removing the many layers of corruption that have been involved for decades. Many times, a company helps establish the connections with roasters in the US but transparency is crucial between the farmer and the grower and that is why contracts showing transparency need to be included. Many roasters believe they are doing direct trade coffees, only to find out they are not. Unfortunately, larger roasters have had the upper hand in working with direct trade. As we move forward it is crucial that even the smallest of roasters are able to contribute and be part of this model.

Spencer: My opinion of direct trade is when the roaster (buyer) negotiates with the producer or cooperative (seller), selects the quality desired, negotiates the purchase price and then completes the transaction (pays for the coffee). The process of importing the coffee is a service that does not change the transaction between the roaster and the producer. Since importers conduct this style of business regularly, by loose definition they are also direct traders, however the term direct trade most often refers to roasters completing the transaction with the sellers.

In the instance where there is no transaction (payment) between the roaster and the producer/cooperative it is known as relationship coffee. The term direct “trade” denotes exchange of payment for coffee, without payment you have direct “relationship”. When referring to “relationship” coffees it may include negotiations, quality decisions, and representation but no exchange of payment for coffee. There is a greater reward in the marketplace for direct trade, and a better selling story, including the message of buyers’ expertise for locating the coffee and expectation of specialty quality. However, with the reward comes the risk, both financial and quality risk—this is the mark of a true buying expert.

Q: Do you think that direct trade has to be an altruistic venture? Is it okay if it’s done for strictly commercial reasons? What about the people who just want to go and travel and play Indiana Jones? Is this an okay reason for direct trade?

Geoff: I would argue it should not be an altruistic venture at all, for no other reason than because that sort of approach usually has a short lifespan and limited reach. Economic viability is an inseparable part of sustainability. Ultimately coffee farmers, coffee roasters and coffee retailers need to make money, otherwise the relationship will collapse. We don’t do the work we do just so that we can feel good about ourselves—we are trying to catalyze permanent changes in an industry that needs them desperately. That means building organizations that can be self-sustaining and which can grow and extend their reach over time.

DT is not charity, it is a way to work with coffee that makes the pursuit of quality a viable and attractive choice for coffee professionals and sets the stage for those working in all aspects of the industry—roasters, baristas, farmers, farm workers, millers, cuppers, agronomists—to be successful by acting collaboratively rather than in a mercenary, every-man-for-himself fashion.

Regarding the Indiana Jones thing—I think it is good that people in consuming countries travel and visit coffee producers and learn about the complexities involved with growing and selling coffees. I would always encourage that. My advice is simply not to get to caught up in the romance of it and make sure that the time spent on farms and working with farmers is thoughtful and productive and in service of a long-term goal or plan. DT is not built in a day. It took us many years of travel before we really knew what we were doing. But you have to start somewhere. Everyone is a novice when they start, and there is no single blueprint for being a coffee buyer.

There are a lot of hard-earned instincts required to be successful, and those can only come through experience. I just wouldn’t confuse coffee tourism/treasure hunting with meaningful development work. They are two different things. And ultimately a successful DT project should mean less travel over time, not more. The goal is to establish relationships and systems and then strengthen them over time, to a point where they don’t require as much constant touch in order to work well.

Molly: I do not think that direct trade sets out to be an “altruistic” venture; rather, it strives to offer another option to producers, who would like to sell their high-quality coffee directly to a roaster. Direct trade is not a certification. It’s a buying philosophy. For this reason, I think that it fits well into coffee culture. I like to look at the social benefits seen from direct trade purchases as a type of small business loan instead of charitable contributions. Producers who want to produce higher-quality coffees that fetch higher prices on the market must invest a significant amount of money into their land and processing techniques. Similarly, economically stable communities lead to long-term development, which allows more opportunities for coffee producers and their families to improve both their products and their lives. Direct trade premiums help the producer achieve these goals and allow him to produce even better coffee in the following years. Coffee Bean International will pay more to a producer for their coffee from future crops if it cups better than the previous year, giving a clear and direct incentive to improve coffee quality. As a specialty coffee roaster, we are always committed to improving the quality of the coffee that we receive and paying premiums for direct trade coffees is a direct way to achieve this goal.

With regard to the people that just want to go and travel and play “Indiana Jones,” I don’t think that direct trade is for them. Visiting farms multiple times per year requires a significant amount of time and investment. This is definitely justifiable if is serves the purpose of acquiring high-quality coffee, but would be a waste of resources if the trips were not designed to accomplish specific tasks and create strong relationships with producers.

Mark: Let me begin by saying this, coffee people are the most passionate people in regards to altruistic ventures, we are the ones who get involved with growers in many different ways, whether that be providing information or doing fundraising for cows, bicycles or whatever other needs may be prevalent. It doesn’t have to be an altruistic venture and I don’t know the thoughts of others involved, mine is a compassionate venture but if someone is doing it for purely commercial reasons, as long as the farmer is benefiting, you won’t get an argument from me. As for the Indiana Jones model, I think there is a bit of that in every coffee buyer, but it has to be balanced—it’s not about us, it’s about “others.” Let me end with this statement, General William Booth, the founder of the Salvation Army could only afford to send one word to his workers in the field at Christmas, he used the word, “others.” I think this defines what direct trade is and why many coffee roasters are involved in this endeavor.

Spencer: Travelling to origin is great, and should be required of all coffee buyers. Knowing the source of the coffee is an important message for specialty coffee and provides a unique message for those willing to spend the time and money in research and building relationships. Great coffees, even specialty coffees, can be bought and are available using normal commercial supply chains via green coffee importers.

Importers can usually trace the coffee back to the dry mill and identify the cooperative if the coffee is sourced via that supply chain. This does not lessen the quality of the coffee, just identifies it as a different supply chain. Importers can build a relationship supply chain for their customers; they are already in the business of buying green coffee at origin and transporting it to consuming countries, and can customize this supply chain for customers. However, the price of setting up a single supply chain or importing less than container load may increase the selling price.

Producers and cooperatives want to know where their coffee is headed, and genuinely want to provide quality coffee to help build a healthy sales operation and create repeat business. Open communications between the roaster and the producer can only lead to a stronger and more positive coffee supply chain.
The risk to our industry is misrepresentation and lack of commercial knowledge. Misrepresentation—false, wrong or misleading messages to the consumer. Stating direct trade without actually trading the coffee, or using last year’s / last crop’s relationship to buy current crop from an importer/trader and still advertising to the consumer an outdated message. (Direct Trade is when the roaster conducts business directly with the producer/cooperative for each supply contract, meeting the producer and then buying the coffee from an importer is not Direct Trade)

Another risk is lack of commercial knowledge—when a buyer presents themselves to producers for a supply relationship by making promises and gestures of buying, seeking detailed knowledge, requiring samples, and conducting price negotiations, all without the intentions of buying the coffee. This action will take the coffee off the market, making it unavailable to other buyers, and may cause financial distress for the producer. Another risk which specifically harms the financial wellbeing of the producer is negotiating prices not based on actual volumes: seeking the same price as full-container or multiple-container load buyers and then purchasing less than container load. This price negotiation may seem like good business to keep prices inline and reasonable, but does not take into account the economy of scale for processing or logistics.

Q: How has direct trade affected your personal/family life, in both negative and positive ways?

Geoff: My personal life was wildly imbalanced for a while due to near constant travel. There were stretches of years where I was not in the same place for more than 10 days at a time, and where more than eighty percent of my time was spent abroad working on coffee projects. That was tough, but I have no regrets. There really was no other way to get it done, and I owe most of my coffee knowledge to all those years spent running around the world trying to figure out how to make this DT idea work. But yeah, I had to go almost a decade without a steady girlfriend due in part to all the travel, and those thousands of hours spent standing in lines, sitting on buses, sitting in airports, and just plain waiting for things to happen are lost, I will never get them back. I wouldn’t be sad if I never saw a hotel again either. Still, I wouldn’t change it. I feel as though I condensed 20 years of coffee learning into an intensive 8 years and that’s something I’ll always be grateful for.

Molly: I studied Anthropology and Latin American studies in college, so finding a job that combined my passion for coffee with specific skills that I learned in school was pretty incredible. I knew what I was getting into when I signed up with CBI. While air travel and endless truck/motorcycle rides can be exhausting, I feel so lucky to have a job that I love, which is something that is very important to me.

Mark: Direct trade has made us think differently when it comes to purchases; we want to know that the product we are consuming is safe, has been prepared correctly and that the workers are receiving a fair wage and being provided for. It’s questions my whole family asks now and so do others, so public pressure is a key role in making this successful and thanks comes through education.

Q: How has direct trade affected your company/business strategies, in both negative and positive ways?

Geoff: It took a while to figure out how to make it efficient. I can say for sure that in the early days of our DT program, we were not making money. There are a lot of costs involved in doing this kind of work, and in some respects they are front-loaded because the most difficult work comes in the beginning—setting up systems, working on infrastructure issues, dealing with early mistakes or failures, and so forth. But the positives far outweigh the negatives. Today we have almost a decade of experience working with our DT system and we’ve got the engine humming. We’ve received a lot of accolades as a result of the work we’ve done, and have a very loyal customer base and an amazing network of farmers around the world who are friends as much as they are suppliers. So I’d say all the work and the early hardship has been justified.

Molly: We are only entering our third year of buying direct trade coffee officially (although Coffee Bean International has been buying “relationship coffees” since the 1990s), so long-term positive and negatives are hard to speculate on at this point. A big positive that we have already seen is the improvement in quality of our coffees from Peru and Nicaragua (our oldest Project Direct programs) as well as receiving overwhelming support from our customers that believe in the direct trade buying model and are eager to buy into the concept.
One negative is that we cannot buy as much direct trade coffee as we would like. As a private label roaster, we can only buy as much coffee as we have demand for, so the program can only grow if our customers latch on to the idea. Sales started off slow, but we have seen a dramatic rise in volume from last year to this year, so I am pretty confident about being able to increase our volume significantly in the coming years.

Mark: It has and always will be our strategy and passion. Taking on something like this is not a simple task and working with other countries, cultures and ways of doing business can be very difficult at times. Many times, due to a fluctuating “C” market, direct trade coffee individuals find themselves being priced out of the market, having a difficult time being sustainable themselves. We are currently experiencing that at Dominion Trading but fortunately, many of our roasters embrace our mission and desire to work directly with the farmers. The bottom line is “How does the cup score and taste?” and “What does it support?” Those questions have to be asked in that order. It has be a great coffee with a great cause, not a great cause with a low-quality coffee.

Spencer: Direct trade and relationship buying is a great opportunity to connect the producers and cooperatives with the roasters and in some instances with the retailers and consumers. This is a very positive activity for the coffee industry. Roasters need to increase budgets for international travel but will take in the rewards for enhanced marketing of coffee.

Negative issues are only realized when the coffee quality is not to specification or expectations, or when the availability of coffee changes. Unfortunate and unforeseen issues test the relationship: this can strengthen the bond if issues are resolved positively, or dissolve a relationship when the bond is weak. Risk is when the purchased coffee is not up to expectations and is traded on the name of the producer/cooperative or marketed based on the direct trade relationship and the coffee quality is poor, or this year’s crop is not the same quality as prior year’s crops.

Whether the coffee was purchased using direct trade or direct relationship the roaster (buyer) retains all responsibility for quality or other claims. What to do when the coffee arrives in the domestic warehouse and it is different than the pre-shipment samples, is water-damaged, is infested with insects, has primary cup defects, is not the same grade, is outside the weight franchise, etc. It is the buyer’s responsibility to negotiate the resolution of these issues and occurrences directly with the seller (producer/cooperative). In these instances, the company that actually completed the importation is a service provider only and may not assume any risk, therefore may not participate in claims—this is a fundamental risk when conducting business direct. This is not a justification for the work or resources of the importer, this statement is to identify the negative impact or risk, both physical and financial the roaster (buyer) assumes when they enter this type of business, knowing the benefits to supply chain, quality, marketing, and souring relationship may often outweigh the risks.

Q: Does direct trade need to adapt to survive? Now that many farmers are getting more involved/more educated, is it time to ‘set them free’ as it were to make their own decisions? Can direct trade become a negative for farmers, even if the buyer is attempting to do good?

Geoff: Absolutely. If it doesn’t adapt, it will become irrelevant. But again, that’s why it isn’t just a set of criteria or a checklist. It is an approach, founded on the idea that farmers and roasters ought to be working in tandem, with mutual trust and respect, and for mutual gain. When that is the case in practice, there is little to worry about. The farmers we work with have the ability to sell their coffees to anyone they want, but they choose to sell them to us because they believe in the value of the relationship and have seen for themselves how beneficial it is to have consistent and reliable partner.

Molly: At this point, I think that direct trade is in a pretty good place. The buying concept started off small, but I think it’s gaining momentum, and the efforts of Coffee Bean International and the other major players in direct trade—Stumptown, Counter Culture, and Intelligentsia—have created a really good jumping off point for other roasters to introduce the buying model to their companies as well.
If the concepts of direct trade are followed honestly and truthfully, I don’t see a negative for farmers. Direct trade is only one option for the producers, and they are not required to sell their coffee to a roaster if they are opposed to it. I see it as a huge positive that producers are getting more involved and educated regarding the sale of their coffee. A more involved producer gives more attention to the crop and makes informed decisions as to where he wants to sell it.

Producers have serious concerns about the unexpected. Because the coffee market is traded publically, volatility and unpredictability are something that producers have to learn to cope with to survive. Setting up direct trade relationships is one way to add some stability to the buying process because we can promise the producer that we will buy their coffee again the following year. Starting a direct trade relationship with a producer one year and then not following with future business can definitely undermine the concept of sustainable buying models. The producers that we work with expect multi-year relationships with us. If a producer’s coffee falls below the expected quality, the relationship is not over. We are committed to working with producers over the long term.

Mark: Great question and the answer is a resounding yes. Our goal should not be to establish our own monopoly. As we work with these farmers, helping them understand proper agricultural principles, roasting, cupping, scoring coffees, we should let go of the training wheels and allow them to run on their own. I liken direct trade as to parenting; you want to train your kids to learn to provide for themselves, to stand on their own feet and not have to completely rely upon their parents. At times, you also want them to learn from their mistakes but they don’t make mistakes if you don’t let go. Our goal should be to educate farmers, to help them on their journey and eventually let go. This is all about a relationship with growers, knowing them personally and working with them to create a better future for their families. Although we let go, it doesn’t mean we are not part of their lives; we are.

Spencer: Direct trade works extremely well when both parties have a decision in the transaction. The seller should remain independent to set prices based on changes in cost and prevailing market conditions, with respect to the relationship with the buyers. Direct trade can become negative if it is part of a supply contract that does not take into account changes in financial structures and the availability of coffee—both buyer and seller should always have the opportunity to adapt and change the transaction or seek alternative supply/sales channels for coffee. Direct trade provides transparency and connects the consumer to the producer, which is a wonderful thing.

GOING FORWARD

From its very inception, direct trade has been—like so many other great ideas in coffee—a grassroots, ground-up, make-it-up-as-you-go concept. Which is a large part of what makes it work. Will the industry ever come up with a single definition of the word or a unified outlook on how the concept should play out? It’s hard to say. Until then, conversations, controversy and confusion might just be part of the definition—as will social changes, development strategies and success stories.

 

From the Other Side: A Tale of Direct Trade and Finca Chicapacy
with Silvia de Lazo

Our Background

My husband Edgar spent his early youth in the large coffee farms of Coban in Guatemala. He received a scholarship to a small college in Montana, received his Ph.D. from Purdue University and spent 45 years working for the drug industry (he was one of the inventors of the pregnancy test). He retired in Sept. 1991 to take over the management of the coffee farm he and his two sisters inherited. He took several bags in the trunk of his Cimarron and headed north to the wine country. He made three sales the first day. Several years later, we sold to a small start-up company in Marin County. There were others that we sold to directly, but here are a few histories:

Customer 1 (C1): The first café Edgar visited purchased coffee and remained a client until last year. They still advertise that they sell our coffee on their website. For ten years, they bought five bags of Chipacay coffee a month like clockwork. They visited the farm and became “fans.”

Then came the problem. We had shipped several bags of seconds for a buyer in Palo Alto and this got delivered to C1 instead. C1 stopped buying from us for a few months and we heard that someone had asked them at SCAA why they were still buying Edgar´s coffee since it was so bad. Someone was advising C1 at the time.

We came back to the Bay Area and did some damage control. We changed our distribution to a Local Distributor (LD). C1 started buying again and all was well until a Guatemalan coffee from LD was delivered instead of ours. When we did not receive delivery orders for several months, we asked what was going on. C1 thought they were still buying our coffee. More “specific instructions” to LD corrected the problem.

Customer 2 (C2): The second café Edgar visited also purchased coffee and remained a customer (15 bags a month) for 16 years, until we changed delivery from LD to private warehouse and private trucking. C2 claimed that they were buying 30 bags a month from us, an impossibility since we were not producing enough coffee to supply that many bags. They refused to buy our coffee unless it came through LD (a cost of trucking issue). Still am not sure if C2 or LD was the bad guy.

Customer 15 (C15): C15 opened a coffee roasting company in a garage. They bought from us from the beginning of their business and increased their purchase to over a container a year as they grew. At one point, they gave us equipment for a cupping lab worth about $500 and paid for a cupping course for one of our employees ($250 in ANACAFE). For years we had a cordial relationship. I would stay at their home when I visited the area, and they and their employees would visit our farm.
Last year, the relationship fell apart because they could no longer deal with my excuses.

My excuses:
1) I was short of money to pay for the transportation, processing and shipping to US, etc. because Social Security cut off my payment. My fault. Never could get together enough money for a decent cushion.
2) Our organic certification delayed because of problems in regional office. My fault. I should have driven up to Oaxaca and jumped up and down on desks until something was done.
3) We could not ship on the projected date because:
a. Our harvest was a month later than past years due to changes in weather.
b. Their buyer had told us that we should keep our coffee in parchment for two months before shipping.
c. Transportation was paralyzed in Guatemala due to trucking strikes.
d. Ports in Latin America close down the week before Semana Santa.

C15 was very angry and told me to sell coffee locally, which I did within 10 minutes of hanging up. She changed her mind the next day, but it was too late—coffee by then was probably on its way to California, probably to be purchased by C15 under another brand that she regularly buys.

So, those are some of the stories of Finca Chipacay and Direct Trade. A few months after discontinuing our U.S. operation, I opened a small café. In November of 2010, my barista became a national champion. In January, we are opening a bigger café, and I am worried about having enough coffee to supply my café and two other restaurants. The demand in Guatemala for quality coffee is exploding, and I foresee this becoming a trend in all producing countries.

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