Direct Trade Coffee evolves
Today a couple guys came to the lab to talk coffee asking about Direct Trade. They asked “What does it mean and how does the market perceives this?”
I was torn on how to respond as it means different things to different people in the industry. And with out a consensus with in the industry the message to consumers is confusing. However I find those who use it well are not concerned about how consumers define or understand this term. There is a big difference between using a term that you have as a future goal to add value to your brand vs adding value by executing well and selecting the most accurate term to describe what you’re doing. I’m sure this resonates for some of you.
As I think back over the last 15 years of all the roaster trips we’ve hosted as well as meetings (both formal and informal) at different coffee association events one of the most controversial points about Direct Trade is not what most would expect. I find most people in consuming countries see the level of communication with producer as a key pillar. This is not the case.
The reality is that the buying roaster, the producer and any link in between, be it 1 or 11 end up focusing on level of commitment and defining expectations. While communication is a foundational element, its simply the bedrock of a great Direct Trade relationship. The life that flows through this is in the details. Really, it comes down to sharing risk. And while communication is key in minimizing risk between multiple parties, it is simply not enough. A good fit goes a long way. Simply put, a good fit is where one person is giving exactly what the other wants. This means hammering out A LOT of details. It has been an easy band wagon to jump on for roasters to embrace the Indiana Jones of coffee idea. And while this story sells, it is enduring meaningful value that builds a great brand in the long run. And the “best fit” is an efficient one where a producer is not offering any more or any less value than the roaster wants. To put this in brewing terms, an inefficient DT relationship is one where there is over or under extracting happening. And in order to get a final result that makes everyone happy, something needs to change.
We get inquiries from several new roasters I’ve never heard of every week and I find that it seems easier and easier for someone new in the market place to have clarity of vision, laser sharp focus and have a at least a vague idea that the cost of their endeavor is more than they imagine. This is much more than many of todays leaders in specialty coffee could say in their first years 10, 20 30 years ago. Clearly credit should be given to those who pioneered and paid dearly for it.
The future of direct trade is one that hinges more upon the buyer being very clear about what they want and the seller being very clear about what they have. This requires continued education on both ends of the spectrum. If you’re a roaster reading this and you’re thinking to yourself. ”I know exactly what I want!” I would suggest you ask everyone in your company to describe exactly what they feel your company wants in a Direct Trade relationship. If everyone from investors, CEO, operations, human resources, accounting, sales, training, roasters, green buyers, baristas are on the same page – that is a great start. And everyone DOES need to be on the same page to embrace and give meaning to a commitment. But this is still just a start. The next question to ask would be “Is what you want something you already have and you want more of the same? Or do you want something different than what you have” For most it seems to be the latter and this is fine. It simply means there needs to be a clear plan that makes sense to everyone on your team. And THEN you can step into the conversation with producers and say something like “This is what we think we want.” I don’t think one can say with confidence what they want until they’ve gotten exactly that a few years in a row.
Over the last decade we’ve seen the gap in price paid to farmer and price paid by end consumer grow significantly. And earlier this year for the first time since 1997 the commodity market has reached a point where the gap has decreased. This has happened because many roasters have not reacted by increased prices across the board that reflect their costs. Those that have made increases have either partially or completely protected their margin. However many large roasters are banking on futures dropping and are waiting it out. In fact the J.M. Smucker Company announced a 6% decrease one month ago. This is curious to me as Guatemala has had the highest differentials this year in over half a century. And when the C market has dipped, the differentials did not stay the same… they increased, which means the market value for Guatemalan coffees has been less connected to the C in 2011 than it has since the beginning of the Coffee Exchange in NY over a century ago. This is good for ensuring future quality out of Guatemala and it seems the market is there to support it.
As someone who sells coffee to roasters I realize a brand can be perceived to be bigger and of better quality than it actually is. The the inverse is also true. Neither of these deter me in wanting to facilitate a direct trade relationship. However as a roaster you must consider how this is perceived by a producer when they see that you look cooler than you are. Or that you’re under appreciated. They are just as interested in your customers being a good fit for you as you are a fit for them. While you are making operational decisions week to week, month to month, they’re looking at several years at a time. Producers with exceptional quality want to capitalize on the current market and they’re more perceptive than ever to 2 or 3 year contracts. This is a bad idea for any large roaster with small margins, but if you’ve protected your margins, this is the time to talk about locking up your green from your favorite sources for the next few years. It is definitely a risk. But if it is one you can afford, you are in a fantastic position.
I can very quickly know what to expect from a roaster in their approach to dialogue with a producer by looking at their relationships with their wholesale accounts as well as how they present their product and brand to consumers. At the end of the day, a good brand is a good place to start, good quality behind “a” brand is also good. But good quality AND a good brand together, have a very desirable stability that commands attention.
In short – your brand and target market NEEDS to be aligned with you budget and this will dictate what you can buy. And if you don’t like where this leaves you, something needs to change with either your brand, target market and or your budget. A lot of what in my opinion is legitimate direct trade in coffee is not economically sustainable. This is not good. For anyone. If you would like assistance in assessing what a best fit might look like for you, drop us a line. We’re happy to help any way we can.
