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Current Farm Partners, The Numbers


Producer: Robin Gutierrez / Guatemala

 Direct Access Offering: Single Origin Med-Light Roast

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.25 per lb of green coffee

Method of Premium Payment: to Robin via remittance (bank transfer)

 

Producer: Subroto / Indonesia

 Direct Access Offering: Single Origin Medium Roast

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.16 per lb of green coffee

Method of Premium Payment: to processing partner in Java

 

Producer: Nelder Quiroz / Perú

 Direct Access Offering: Organic Med-Light Roast

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.20 per lb of green coffee 

Method of Premium Payment: to Nelder via export partner

 

Producer: Elver Paya / Colombia

 Direct Access Offering: Organic Medium Roast

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.84 per lb of green coffee 

Method of Premium Payment: to Elver via local producers association

 

Producer: Maria Velasquea / Nicaragua

 Direct Access Offering: The Optimist Blend

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.29 per lb of green coffee 

Method of Premium Payment: to local processor/export partner

 

Producer: Rosario Castro / Nicaragua

 Direct Access Offering: Both Ways Blend

Financial Benefit to Farmer (or Small Farm Organization) Above Best Market Alternative (Premium): $0.29 per lb of green coffee

Method of Premium Payment: to local processor/export partner

 

A much deeper dive.

 

We would like to go deeper and share OUR economics in this model...

If you happen to have even the smallest social justice vein running through your body, I would ask you to sit down, stay calm (deep breaths), and keep an open mind.  You will be tempted to read the next chart and pointedly ask, "Why does so-and-so make so much, when the farmer gets so little?"  In broad strokes, this is THE problem we are tackling: we are forging a new way to approach the coffee supply chain to create efficiencies and eliminate gross disparities; ultimately, we are shifting the flow of profits more in favor of the small farmer. 

Here is what the money flow looks like for a typical finished 12-ounce bag of specialty coffee at your grocery store:

 

The above chart is based upon a number of assumptions:

- production cost of $1.35/lb of coffee to the farmer (an average across seven Latin American countries based on data presented by Caravela Coffee in their 2019 white paper underpinned by extensive on-the-ground work, https://caravela.coffee/wp-content/uploads/2019/07/COP-White-Paper-July-2019-FINAL.pdf)

- $1.35 per lb farm gate price paid to the farmer (a great price versus the low commodity market as of this analysis (August 2020)--the farmer is actually doing much better in this example than if they sold on the commodity market.

- fairly typical processing and import expenses

- 8% distributor fee

- 5% grocery broker fee

- 42% grocer margin  

You might ask if this is possible. Are these economics reasonable or common? After all, the farmer is merely breaking even.  Not only is this scenario quite possible, this can be almost typical in some countries.  In 2018, 53% of the smallholder specialty coffee growers in Colombia lost money on their crops according to the Specialty Coffee Association, based on a collaborative study from University of Muenster’s TRANSSUSTAIN research project, University of California Davis, and the International Coffee Organization, https://sca.coffee/sca-news/25-magazine/issue-11/the-cost-conundrum

So now, why do all of those other people get so much money, when the farmer is getting so little?  There are in fact some good reasons in many cases.  Even with domestic products with relatively little processing, the farmer often receives a very small percentage of the final retail price.  In coffee's case, there are a large number of necessary, value added steps that must occur between a coffee cherry being picked and your purchase of a roasted bean in some locale thousands of miles removed from the farm. There are a lot of hands that must touch your coffee on that journey, and all of them are looking to get paid. 

There in fact, are not a lot of people getting filthy rich in the specialty coffee trade--those who are, are outliers. In real dollars, grocery stores make the most off of each bag of coffee sold as you can see above.  Factor in the overhead that the grocery store faces, however, and the grocer may be among the least profitable members of the supply chain.  An international shipper who makes only pennies off of each bag that ultimately sells on a grocery shelf is moving huge volumes, may have the least risk in their business model, and the owners might be doing Scrooge McDuck dives into piles of cash.  The roaster... yep, the roaster typically receives a lot of the overall revenue from the sale of a 12-ounce bag, but for most specialty roasters (ourselves included) equipment, labor, and marketing costs are significant, and these costs are incurred in an expensive, developed economy. 

A family will starve on a few thousand dollars of income in a year in the United States, yet in many coffee growing countries the median annual income is in the hundreds of dollars, not thousands, and cost of living is significantly cheaper. There are vast disparities between the local economies and normal or accepted “standards of living” between supply chain actors at the beginning and end of the supply chain. These factors should not be an excuse to avoid taking action to improve small farmers' positions in this system, but these dynamics should be recognized when we look at the supply chain and try to determine what is equitable (or even reasonably achievable) for all parties.

While the determination of what is equitable might be subjective, barely breaking even or straight out losing money is unsustainable for all. Smallholder farmers are among the most vulnerable of all the supply chain actors when they do find themselves unprofitable. At present, there are significant numbers of smallholder coffee farmers who are routinely losing money on their crops and only surviving by tapping into additional “free” family labor or supplementing with other crops.

We created a model that allows all supply chain actors to make a predictably sustainable income, and importantly, provides more income and long-term sustainability for smallholder farmers.  An annual income of a few thousand dollars goes far in a country with a median income in the hundreds, and we know how to achieve that greater income with Direct Access.

We are eager to share the cost structure that exists with Direct Access. More than allowing consumers to purchase directly from farmers, we are going directly to farmers with the deal being offered by consumers. We are not so much “direct to consumer” as we are “direct to farmer”. “Hey farmer, this is what consumers are willing to pay for your delicious coffee, and this is what it will costs to process, ship, and roast it. And after all costs are paid, you keep what is left over. Do you want to sell your coffee in this manner?” Stacked against the next best option, Direct Access income is compelling to most farmers. Because we feel transparency is important, we are happy to share the actual numbers.

Here is what the economics look like for a 12-ounce roasted bag of coffee that is sold by a farmer through Direct Access:

This is the actual retail price, the actual gross profit we realize as a roaster, and actual cost of packaging.  Where supply chain costs can be variable, we have made the same assumptions as the first chart: $1.35/lb production cost, typical processing and import expenses, 8% distributor fee, 5% grocery broker fee, 42% retail grocery margin.  There is an additional financing fee assessed to the farmer, as we are lending directly to or assisting the farmer to borrow so they can cover costs as the coffee leaves their farm (pickers need to get paid and family living expenses need to be covered).  We have assumed that the farmer will borrow enough to more than cover their farm cost as the coffee leaves the farm.

Under the Direct Access model, the farmer owns their coffee deep into the supply chain, so the farmer is borrowing money to pay for processing, shipping, storage, packaging, roasting, etc. up until the coffee is sold into grocery.  It is important to note, that the Direct Access team assumes all risk on this borrowing.  Because the roaster (us) does not have to cover such a relatively large cost of goods as in the status quo/transactional manner that coffee is normally purchased and resold, the roaster can operate with less relative gross profit and still be more profitable in terms of margin percentage.  That profit that is freed up from the roaster goes to the farmer. As Direct Access gains more scale and efficiencies in shipping coffee from origin countries, additional money will be freed up along the supply chain that can go to the farmer.

We hope that you recognize the true impact potential that 20- or 30-cents per 12-ounce bag in profit can mean to a smallholder farmer.  On a small 5 to 10 acre farm with reasonable yields this can mean thousands of dollars in additional profit each year through Direct Access. 

One last note—we are bold enough to be transparent.  That comes with risk and opportunity.  Weighed against one another, we found that focusing upon the opportunity was more in-line with our character.  That said, there will be some who would like to make comparisons between us and this or that certification program or with what that other roaster says they pay for coffee.  We welcome those comparisons, as they can only make us better.  The coffee supply chain and how numbers are reported, however, is complex—most certification programs are willing to tell you an amount they paid a farmer in revenue (or more likely a number they paid cooperative) but are unwilling to talk about the cost of production to the farmer or what percentage of money paid to a cooperative reached the farmer—was the farmer even profitable? Some roasters who are well intended are quick to publish the price they paid for coffee from an importer in the States or even what price was paid to an exporter in an earlier exchange, yet these figures don’t actually provide information about what a farmer was paid many months beforehand on the farm.  In short, we welcome comparisons and input; we do ask that you embrace the true complexity and nuance of this supply chain as you provide input or commentary on our model.  Most of all, we hope that you embrace what we are doing (even if messy from time to time) as an audacious counterpoint to the status quo coffee supply chain, as a new model that holds hope for a prosperous future for smallholder specialty coffee growers around the world while bringing delicious coffee to your grocery aisle.  

 

 

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