Direct trade coffee

What is it all about?

Some weeks ago, I was invited to talk about coffee prices, certifications and sustainability in a coffee seminar. Since the seminar was held in a specialty coffee context, I also mentioned the principles of direct trade in comparison to conventional coffee supply chains. However, the more I was digging into the concepts of direct trade, the more confused I got. Many small roasters offer direct trade coffees, while I doubt they have the capability to purchase coffee directly from farmers in Africa, Asia or Latin America. Obviously the term is neither protected nor clearly defined, messages by roasters mixed. So what is direct trade really all about?

Container ship in Port of Hamburg
Container ship in Port of Hamburg

A small roaster is hardly capable of bearing the costs of an overseas coffee trade

My first understanding of direct trade was a simple one: the roaster knows the farmer and purchases coffee directly from him, without any middlemen in between. However, it is also clear, that a small roaster is hardly capable of bearing all transportation and other logistical costs of an overseas coffee trade of only some dozens of coffee bags. So, I tried to get more detailed explanations through the internet. Ethicalcoffee.net provides the following explanation: "Direct trade is a term used by coffee roasters who buy straight from the growers, cutting out both the traditional middleman buyers and sellers and also the organizations that control certifications such as Fair Trade and Bird Friendly, for example."

 

Wikipedia’s definition is quite similar to the one above. Both articles do clearly differentiate direct trade from Fairtrade certification and mention the frontrunner role of the US companies Intelligentsia and Counter Culture Coffee, starting sourcing coffee directly from farmers in the early 2000s. After some more research (SCAA’s Specialty Coffee Chronicle provides a number of related articles), I came to the following conclusion:

  • The roaster knows the farmer and conducts price and quality negotiations directly with him.
  •  Contract, trade and payment is done directly between roaster and producer.
  • One important aspect of direct trade is the mutual benefit for roasters and farmers thanks to a regular and constructive information exchange and long-term trade relations.
  • Quality aspects play an essential role, and quality improvement is incentivized by the buyer.
  • Individual direct trade models might involve sustainability aspects such as social and environmental conditions, but not necessarily. Third party certifications are usually not applied or necessary.

Roasters often tend to talk about a philosophy instead of a static concept, outlining the mutual learning process and trust in these trade relations. Also the consumer has to trust in “his” roaster, when buying and paying for DT coffees.

Roasters have to know the entire value chain, not only "their" end

Establishing direct trade relationships with farmers is not an easy task for specialty roasters. They need to invest in origin travels and acquaint important skills and knowledge related to coffee quality, production, processing, price, logistics and trade. In other words: they have to know the entire value chain, not only “their” end. It is a long process to get to the point where a roaster can make direct trade a really profitable and sustainable approach for his business and to take over the role of a trader. On the other hand, both, producer and buyer, add more value to the product by cutting out other layers and margins, which are usually distributed among several supply chain actors. Consequently purchase and retail price of DT coffees are the highest in the entire sector. 

Purchase prices of members of the German Roasters' Guild - DT being the highest (Source: http://www.deutsche-roestergilde.de/de/news/87-die-einkaufspreise-fuer-rohkaffee-unserer-verbandsmitglieder.html)
Purchase prices of members of the German Roasters' Guild - DT being the highest (Source: http://www.deutsche-roestergilde.de/de/news/87-die-einkaufspreise-fuer-rohkaffee-unserer-verbandsmitglieder.html)

Direct trade is the most transparent trade model

Benefits for roasters are clear: they have direct control over their product and can influence, improve and even tailor coffee quality according to their needs, without being dependent on specific information and contingents offered by their suppliers. For companies like Intelligentsia, this aspect was key for establishing direct trade relationships with farmers. In addition, DT is the most transparent trade model, which allows the roasters to make and keep very specific quality and sustainability commitments to their customers - one of the reasons that makes third party certifications almost obsolete for DT coffee.

 

The outlined benefits are even stimulating more and more mainstream coffee roasters to establish closer (or any) relationships with producers to gain more control over their supply chains. In most of the cases, this is a highly difficult process, since the conventional coffee trade is just too complex and dominated by too many actors, including agents, local collectors and service providers – all of them grapping a piece from the pie, which they do not want to share with their customers and suppliers. Though third-party sustainability certifications may contribute to more transparency, it is mainly non-transparency in coffee trade causing “scandals” such as recently detected cases of bad working conditions in the Brazilian supply chains of Nestlé and JDE. (see the report by Danwatch: https://www.danwatch.dk/en/undersogelse/bitter-coffee-2/)

Coffee factory in a conventional supply chain
Coffee factory in a conventional supply chain

But it’s not only the roaster and consumer benefitting from direct trade relationships, also farmers profit: thanks to the long-term relationships with their buyers they have a secured market access, which gives them a solid base for necessary investments in technology and quality improvement measures, mitigating the risk of price volatility. They will optimize their product over time and add significant value to it – which at the end of the day results in better prices and income. Like this, the producer is really empowered to become a coffee quality expert, business man and social and ecological entrepreneur at the same time. It makes him more independent from world market prices and resilient to weather and economic crisis, hitting the coffee production far too often.

The importer's role is still crucial

Having known many sustainability models in the coffee market, I personally believe that a thoroughly practiced direct trade is most beneficial for farmers, roasters and consumers, however not applicable to any coffee business. The service and knowledge of the coffee importer is still crucial to most of the roasters, playing a vital role, particularly in the specialty sector. In many cases they link farmer and roaster, provide origin information and tailored qualities for their customers. And last but not least, they take over the complex task of coffee trade that a small roaster would not be able to manage. However, as long as the importer trades the coffee, this is not genuinely direct trade coffee, but so called relationship coffee. Unfortunately, as a consumer we get mixed messages by roasters and coffee shops. I think there is nothing wrong in purchasing coffee from a trusted importer, but if you put emphasis on real direct trade, better ask before buying a self-made direct trade labelled coffee. 

Kommentar schreiben

Kommentare: 5
  • #1

    Ivanov Castellanos (Freitag, 01 April 2016 21:12)

    I think your point is valid.
    I am a producer that happens to be able to come and trade my own product and some other farmers coffees.
    I agree, roasters hardly have the time and knowledge to control the DT.
    I like to think, we producers by associating among ourselves can get empowered and become sustainable, responsible and quality oriented enough, to be the real future of DT

  • #2

    cosecha consult (Sonntag, 03 April 2016 13:37)

    Dear Ivanov,
    thanks for your comment and congratulations to your work! I am interested in learning more about how you manage to directly trade your coffee.

  • #3

    AndyinQueensland (Montag, 04 April 2016 10:07)

    Thanks for the thoughtful piece Andrea. As someone who cut teeth with direct trading pioneers in the pre certification days of Fair Trade it is good to see the original tenants being emphasised rather than the vague generalities consumers have come to expect. I feel it would also be well worth exploring the complementary nature of certifications and private Direct for farmers. You make good analysis of the economics which favour larger or more able individual farmers but also how both Fair and Direct can assist very small scale and marginalised with access and quality. I do hope Direct trade roasters embrace long term relationships and do not tend towards voyeurism, flitting to the next 'in' varietal. In some ways Direct and Fair must embrace the modern notion of value chains and their demands to shorten chains via better communication sharing which is in everyone's interest. Win-win deals are becoming the norm!

    I have long been frustrated that Direct has no third party assurance for the consumer. It is easy for a roaster to masquerade behind a good story even if (and perhaps because of) excellent quality. At the end of the day it doesn't matter how many middleman functions there are they all need attending to. The more the farmer learns the more value he/she can accrue and the less at risk to market volatility.

  • #4

    cosecha consult (Montag, 04 April 2016 19:11)

    Dear Andy,
    thanks for this very constructive comment. My professional background is related to sustainability certifications, and I am convinced that third party certifications add real value to and transparency in mainstream supply chains. They can also contribute to empowering and organising small scale, marginalised farmers.
    When talking about specialty coffees, in most of the cases, farmers are already quite "advanced", i.e. they have good knowledge of quality aspects and sustainability issues. So, the real challenge is to bring small, non-organised and less "educated" farmers to a level where they are able to produce high quality coffees and gain a better income, isn't it?!
    Unfortunately quality is not that much emphasized in certification systems, since their standards are built to apply to any size of production systems, also to "mainstream" coops and plantations. So it is hard to find a one-size-fits-all model for the entire sector. This is one of the reasons why specialty roasters tend to be sceptical against certifications.
    However, I expect that sustainability aspects beyond quality, such as labour rights and environmental issues, to be covered by a DT coffee. And I agree that the roaster should be interested in long-term trade relationships. The latter is probably a vital interest for the roaster, too, otherwise he won't be able to really enjoy all the benefits of a DT model. Concerning the social and environmental sustainability of the DT coffee, farmers and roasters could jointly develop their tailored standards to be verified by a third party - more suitable, cheaper and less paper work than a certification system.

  • #5

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