Search
  • Jon Ferguson

A Hybrid Approach to Direct Trade

To quickly touch on the history of direct trade, an article published by the Specialty Coffee Association News in February of 2012 presented a conversation by panelists who participated in the pioneering of direct trade. One of the panelists, Geoff Watts of Intelligentsia Coffee and Tea, defines direct trade as follows:


"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. 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" (Stark, 2012, para. 22).


As the direct trade movement gained interest and popularity throughout the coffee industry, the interpretation and definition of direct trade expanded. One of the more popular assumed qualifications to achieving a direct trade relationship was a desire to lessen the number of hands in which a producer’s coffee passes through, essentially to “cut out the middleman”. But reducing the number of hands involved throughout the supply chain with the intention to improve the financial positioning between producers and roasters is often more difficult to achieve than one may assume.


In an article published by Perfect Daily Grind interviewing Blanca Castro, Chapter Manager at the International Women’s Coffee Alliance, reiterates Blanca’s comment on direct trade. They write, “direct trade isn’t about cutting out the middleman, but instead, putting supply chain actors in the spotlight and putting the right value on that service, without exploitation. She says it’s about aligning mentalities and increasing transparency to improve sustainability. If we can do that, surely everyone can benefit – producer, trader, roaster, and consumer” (Charles, 2021).


According to an article published by Forbes Magazine, “direct trade should mean that your coffee roaster or shop is buying coffee directly from farmers, but what it usually means is that there are fewer middlemen, or simply that the importer can verify the exact farm of origin, even though the coffee still passes through just as many middlemen. What’s more, only a tiny fraction of farmers have the resources to make connections in the coffee-buying world to secure direct market access and take advantage of the direct trade movement.” (Forbes, 2014)


How Do Buyers Begin the Conversation?


The best place to start would be to call your favorite importer and ask about the relationships they have developed over the years and which supplier best fits your needs. Ask the importer for the producer’s contact information and see if you can get in touch with the producer, cooperative, or producer group via e-mail, cell phone, Zoom, Facetime, Instagram, or other social media platforms. Producers and organizations are often willing to meet with buyers, and it usually doesn’t hurt to try! If the producer or organization offers the opportunity to visit their producing area, this can be a great way to “ground-truth” what the importer and producer organizations are communicating through their marketing and communications teams. Reaching out to producers can be a great way to get to know what their goals and missions are as a business in agricultural production and will help determine if the producer is aligned with your company goals. Direct communication with a producer is easier than ever.


Even with social media and communication platforms more readily available to connect roasters directly with producers, discovering new suppliers can still be challenging for roasters with limited resources for building direct relationships. Coffee roasters may lack the ability to conduct organic audits, properly evaluate KPIs for social-economic or environmental programs or have an advanced understanding of the financial tools used in establishing futures contracts for both the seller and buyer.


This is where management and facilitation teams like ElevaFinca and importation companies play a role in creating market access for coffee producers and cooperatives. Green coffee buyers working for roasters, importers, or brokerage firms can contact ElevaFinca to establish and maintain new relationships with cooperatives and producers. ElevaFinca facilitates the discovery process by connecting green coffee buyers with a network of cooperatives, associations, and producers located in Peru and Colombia. ElevaFinca assists in the drafting of FOB contracts, the monitoring of quality control and sampling processes at origin and ensures proper exportation and shipping activities with importation companies that are selected by the roaster. With a few additional questions, we can suggest a list of importers that would provide the services you need, while avoiding those services from importation companies that may already be handled professionally by a roaster.


Jon Ferguson & Erly Camizan at the CSN Mill in Peru

What Should Be Communicated?


Several questions to establish a trade relationship include:

  • What is your annual inventory needs for this origin?

  • Do you have specific underlying required certifications?

  • What are the qualities you are looking to fill in your inventory? (i.e., blending, single-origin, micro-lot)

  • When will you need your coffee to be available at your roasting facility?

  • Do you need financing or someone to carry the coffee inventory, and if so, for how long?

  • Do you require management of quality control from export to roasting facility, or do you have some or all of these steps covered by an internal team?

  • Do you have a logistics team to arrange and manage ocean and overland freight?


With a few additional questions, we can suggest a list of importers that would provide the services you need, while avoiding those services from importation companies may already be handled professionally by a roaster. For example, some roasting companies provide their own financing, quality control processes, and can properly negotiate and draft FOB contracts directly with cooperatives, while other roasting companies require financing, warehouse storage, and assistance in the management of logistics and quality control. Finding an importer that is willing to offer you a piecemeal approach to services may be more efficient. On the other hand, with more responsibilities created for in-house roasting operations may come with an increase of headaches and mistakes. In either case, a piecemeal approach with importers may help shave off a few extra pennies that could have otherwise been spent on the FOB price negotiated to the coffee producer.


What about Transparency?


After discussion on pairing the cooperative and importation company that may best fit your company’s needs, ElevaFinca will begin to establish official connections between parties, including the coffee cooperative, exporter, ocean freight, importer, and roaster. Cooperatives work with ElevaFinca to develop FOB contract terms with the importer, while the roaster is offered to observe the entire process and add to the discussion through emails and phone conversations. This form of transparency is often not developed if all parties in the process do not have an opportunity to have a seat at the table, and we welcome everyone to participate and ask questions!


What about Traceability?


ElevaFinca works with cooperatives to gather the information requested by the roaster to fulfill their desired social, economic, and/or environmental details relating to their relationship requirements, such as specific certifications, participation in agricultural management practices, or other programs. ElevaFinca delivers the gathered information to the importer or roaster. Importers and roasters that arrange origin trips to visit cooperatives is often a way to gain trust between parties and develop a better understanding of the relationship moving forward. Using the “trust but verify” motto should also not be viewed as offensive but rather showing responsible purchasing practices when moving to the level of a direct relationship.


Our latest coffee offer is constantly updated here


References

Ashoka. (2014, July 21). 5 things you need to know about your daily cup of coffee. Forbes. Retrieved March 24, 2022, from https://www.forbes.com/sites/ashoka/2014/07/16/5-things-you-need-to-know-about-your-daily-cup-of-coffee/?sh=3ddb675e7e69


Charles, S. (2021, January 21). Is direct trade an effective model? Perfect Daily Grind. Retrieved March 24, 2022, from https://perfectdailygrind.com/2021/01/is-direct-trade-an-effective-model/


Stark, M. (2012, February 14). Direct Trade: Going Straight to the Source. The Specialty Coffee Chronicle:

http://scaa.org/chronicle/2012/02/14/direct-trade-the-questions-answers/

93 views0 comments