The KRUVE team is happy to introduce yet another guest blogger, Kate Papenberg - an outdoor enthusiast, fueled day and night by the almighty power of the coffee bean. Kate's passions are travel, practicing the art of thinking, writing, and, of course, coffee! Kate examines the intricacies of supply chain and potential future direction! Let us know your thoughts on the coffee supply chain in the comments below!
Introduction: How did we get here?
Gone are the days of wandering the local grocery store or supermarket and buying the cheapest commodity-based good without immediately feeling a pang of guilt.
Fair-trade labels and equitable sourcing claims jump out at consumers on most products these days be it beef, salt, or vegetables. Coffee, however, reigns king in this category of conscious consumerism.
This is rightfully so, however, given the complexities of the supply chain and the coffee belt just having to overlap some of the most disadvantaged nations in the world. That said, fair trade is not a new concept and yet, there are still hundreds of thousands of small-hold farms struggling to make ends meet.
The below discussion will explain how these tiny collectives can leverage e-commerce supply chain technology in order to grow their way (quite literally) out of being exclusive agricultural-based subsistence farmers to more business-oriented, value-chain partners.
The coffee chain: From plant to cup
For those that do frequent a conscious farmers market or café, there is more than likely a graphic or pamphlet detailing the sources of various products, not least of which is coffee.
The journey for this humble little bean (actually a seed), is quite substantial and extremely labor-intensive. This labor, sadly, is normally on a shared basis and provided by the source country, with seasonality playing a major role. This ultimately results in potential layoffs, redundancies, and very poor wages. Small-hold farmers are rarely able to compete with larger, more industrial farms based on the extreme volatility of the market.
A quick note on the commodities trade or market: coffee is the second most lucrative commodity behind only that of oil. Like crude, however, the tiny bean is subject to heat waves, monsoons, air quality, fires, and blights, among other non-controllable factors, that result in boom and bust years for many dependent families.
"This labor, sadly, is normally on a shared basis and provided by the source country, with seasonality playing a major role. This ultimately results in potential layoffs, redundancies, and very poor wages."
When looking specifically at the supply chain, there are a few key steps that take place in the origin country as well as the importing nation. The first part of the value chain might seem obvious as it is the actual farming, but which can go unnoticed since the vast majority of the pricing and negotiating power still lies in the hands of upstream manufacturers. Thus, and because there is only one harvest per year, a small holder is at the mercy of the environment and weather whilst the final producers are better able to leverage sourcing by pitting farmers against one another by way of price wars and the race to sell beans at margin.
Assuming the small-hold farmer has a good year and is able to find a buyer, the next step in the value chain is initial processing of the seed. This is regionally based, but will include either drying the bean (i.e., the natural or dry method) or wet washing (i.e., the wet method) in order to remove any skin and to assess the quality of the seed. Regardless of the process employed, the end goal is the same: remove the outer skin of the bean from the seed and discern high-quality and low-quality beans.
This is often times the first hand-off between small-hold farms and cooperatives as the former may be unable to set aside enough space to dry the beans naturally or have the resources necessary to wash the seed.
A quick note on washing and drying: while the coffee belt encompasses those areas of high elevation lying between the Tropic of Cancer and the Tropic of Capricorn, the dry method is often used for all Robusta beans regardless of location as well as Arabica coffee out of Brazil, Ethiopia, Haiti, Paraguay, India, and Ecuador. This means the wet method is often seen in countries with ready access to water, think South and Central America, as well as those with the ability to garner financing given this equipment-intensive process.
Why the focus on just this one element of the coffee chain? Simple: the higher the number of ‘touches’ in the chain, the more the consumer can expect to pay at checkout.
Consider still further that most specialty coffees are wet processed and so take on an ecological cost that is passed along to the purchaser. This is just food, or drink, for thought.
The next step for these still raw, or green seed is the roaster. This step often times occurs after shipment to the port nation where the bean will ultimately be consumed since taste is closely correlated with roast dates and, so, this process needs to take place as close to grinding and brewing as possible.
Shipping takes place in bulk by large container ships so as to reduce shipping expenses incurred around the hefty weight of the bean at this stage of its life cycle. The movement of these still initially processed beans could take weeks to months before arriving at large Western ports and entering football-field sized warehouses such as those of Royal Coffee New York.
Royal Coffee is highlighted not just for its size, but also its willingness to be transparent across various aspects of the supply chain, which includes climate-controlled warehousing, ecological bagging, insect-repellent transportation to the roasters, and solar panel usage as a means to cut operating costs at each location. All of these tactics are shared across its partner networks in Florida, Wisconsin and still further afield and will be a key consideration further on in the discussion.
During its brief stay in storage, the beans will be tested for quality control purposes and then shipped to the roasting company by truck. Roasting, again, depends on a buyer and his or her location.
Once the coffee is roasted, then it can be sold direct to consumer or direct to business. Please note again, however, that selling will entail still more packaging, shipping, and transporting of beans, which increase the price for the consumer and not necessarily a profit for the farmer.
Breaking the cycle, or chain
So, what gives? How is it that consumers pay more at the till but farm-holders stay locked in poverty, or worse?
Well, remember all those ‘touches’? Each touch corresponds to a business or partner along the value chain and he or she needs a cut of the profits. Thus, working backwards, there is very little left for a farmer to invest in growing the business side of the farm since he or she still must purchase new seeds, pay workers, and begin the cultivation cycle anew.
Fair Trade and other alliances mean well, but are also legacy programs that are focused on the producer in name only. There are still just as many steps between the consumer and the producer today as there were six decades ago during the creation of such charity-like programs…
or, are there?
The decentralization of information and inherent transparency so readily accessible in the coffee consuming world are also quickly finding their way to small holds; just not quickly enough.
Large E-Commerce sites, as well as small business-to-business sellers, now have the ability to link producer with consumer by way of drop-shipping or, at the very least, reduce the need for bulk transportation, storage, roasting, and re-shipment.
Quickly, drop-shipping allows small-hold farmers to directly access the needs of the market, determine how best to meet those needs, and fulfill orders in a near real-time manner. This requires access to the Internet or someone with the means to act as an intermediary, but only in this way will more and more small holds begin to develop business acumen and stop competing against the mass producers who force them into low-cost competition.
Small-hold farmers, now more than ever, have the ability to capitalize on the popularity of small, micro-lots and sell raw beans directly up-channel. These same individuals, it must be asserted, will not be capable of buying all the necessary equipment for the wet-method or dry-method at first, but by understanding pricing, pooling resources, and working as cooperatives, each region has the ability to generate just a bit more profit in which to plow that back into business growth.
A final alternative is working one-on-one with roasters willing to not only share the initial investment costs, but to act as advisers or consultants. The means in which to finance businesses are more bountiful than ever and now include forays into digital currency or use of solar panels to sell back energy, at cost, to a local grid.
Even if small holds must diversify and sell energy or knowledge into a different industry such as maize or carpets, they are still improving their likelihood of escaping a vicious cycle of always trying to have enough healthy coffee plants in which to sustain another year’s expenses and wages.
Moving away from a long, antiquated supply chain is the only long-term means in which to ensure some of the best beans the world over lands in the cup of the connoisseur. This will take on various forms to include education, investment, partnership, and funding, but is far and away a better option then relying on the now legacy-model of Fair Trade labeling.