Wednesday, 15 August 2012

Fair Trade Vs. Direct Trade

Open Training 2

Fair Trade Vs. Direct Trade:

 Which is the better buy?

An awesome night and discussion was had on this topic, hosted by Janne Kass. 
For all of those who have heard the names but don't know the story here is a little overview of how coffee was and sometimes still is sourced and processed.

From the farm to your cup, your coffee has been bought and sold by middlemen. In the glory days of cheap espresso you could buy a kilo of beans for two bucks and create two single shots with only one of those shots winding up in a customers cup. The mark ups are huge. Some chains still operate like this and within the buying and selling there can be a cycle of poverty for farmers. A working poverty. As a result of a free and open market a buyer for a massive multinational could come to a economically poor area that produces coffee and offer the farmer one tenth of a sustainable price. If that farmer didn't sell at that price there was guaranteed a neighbour who was slightly more desperate who would. 

Quality didn't matter too much. If you take any bag of green Arabica and roast it hot and long enough it will even out to create a familiar "coffee" aroma. Tastes of smoke, earth, tobacco and if you're lucky maybe some dark chocolate (starting to sound familiar for some chains?) and no acidity. You package this up and sell it as your "Prized Blend" sourcing from 14 different countries and your customers think you're god, while placing three tea spoons of sugar into a cup 26oz full of milk with a shot of caramel. 

A terrible catch 22 in coffee production. Outstanding coffee relies on all the Arabica beans being evenly ripe and even shaped. Sourced from a strain of coffee that only grows at high altitudes, is susceptible to disease and ripens unevenly (requiring pickers many pass overs of the tree). Why would a farmer invest in new wet mills, pulping stations, man power and organic certification when the quality didn't matter for the big sales?

By the mid 1980s a shift began to occur. Fair Trade (now governed by FLO-CERT) was born of independent little groups from the 60s amalgamating to start to address the appalling conditions for farmers with the current system and offer farmers a "fair" price for product. Farmers were required to form co-operatives for a region. It had a buy in price (currently $2,773 US) and had a set of expectations for consumers like "no child labour" and so on. 

Here is an example for a small team wanting to join from the FLO-CERT website.

Mostly starting off with craftwares it wasn't until the 90s that coffee took a front seat for the Fair Trade certification. Coupled with new grading techniques for coffee and the formation of specialty coffee charters, the seeds for coffees third wave (not seen til the 2000s) had been sewn. An ethical choice had arrived and was going to make us all feel better about our morning brew.

But beware. The waters are muddy and sometimes the correct path in coffee purchasing isn't so clear. Here's why we believe "Direct Trade" with coffee farmers is a better option when available than current trends of using co-ops.

Below is a summary version of Janne's presentation followed by a Q&A from Anette Moldvaer from Square Mile Coffee Roasters.

What impact can I have?

Coffee as a commodity, an every day product remains part of a split culture: that of the growers and farmers and the consumers. As such it is sometimes difficult to realise what kind of an impact you, the consumer, or a barista can have depending on the choices you make when you purchase coffee in terms of origin, quality and sustainability.

Fair Trade

There are a number of organisations which control the certifications such as 'Fair Trade' and 'Bird Friendly' which as a result of being highly regulated aim to give consumers and roasters a standard of a certain level when buying coffee.  With these organisations of course come traditional middleman buyers and sellers that play a big part in the pricing of coffee according to the world trade price of coffee per pound, currently at US 1.74 per pound.

Direct Trade 

The direct trade model which has been getting a lot more attention recently from artisan and specialty coffee roasters and buyers. This is because the coffee roasters buy straight from the growers and actually visit the coffee farms themselves ensuring that they have more control over aspects ranging from the quality of the coffee, to social issues or environmental concerns.

By building a mutually beneficial and respectful relationship with individual producers (or cooperatives) in coffee producing countries the direct trade model is less focused on capitalism and more focused on sustainability.

There are several roasters that use the direct trade model in more specific ways. For example, the Chicago-based company Intelligentsia, which roasts coffee and sells it by mail, in addition to operating coffee shops, has trademarked the term Intelligentsia Direct Trade to promote its direct business relationship with growers. counter culture coffee, another roaster, established in 2008 what it calls Counter Culture Direct Trade Certification. Like fair trade, counter culture sets a minimum price it pays, but it also establishes a quality standard. And, unlike the fair traded certification, Counter Culture does not require growers to be part of a cooperative, a requirement that rankles some independent-minded and successful growers.

HasBean roasters based in Staffordshire have their own policy of their direct trade coffee, publicised as "fairer than that". They, like Intelligentsia and Counter Culture highlight the personal relationship they forge with the coffee farms, and the importance of sustaining that relationship for the future of the industry as a whole. It is important to realise that unless you trust the company ethics supporting the direct trade model, there is no real way of checking whether they are true to their word. Hasbean however has solved this issue by publishing a 'relationship report' which lays out all the prices that were negotiated  between the roaster and the grower, and the price paid by Hasbean.

In short, direct trade is a much more long-term model focused on quality, reliant upon consumes that pay attention to detail and do their own research into the company ethics. Fair trade is a model which aims to give the consumer a better idea of the background of the product that they are buying, but due to the heavy regulation, often fails to take into consideration the needs of the producers.

So maybe when you next buy a coffee what you've read here may cause you think about the exploitation of small coffee farmers by large corporations - and you'll make the choice that is right for you.

So Direct Trade is the one for you huh? Well, it might not be as 'direct' as you'd like it. Fair Trade is still opening up avenues around the world for some farmers but are these choices sustainable?

We asked Annette Muldvaer from Square Mile Coffee Roasters (our main provider of coffee here at Giddy Up) to shed some light on the sourcing and buying process.

What kind of system do you support for purchasing coffee?
As you can imagine the complexities of the coffee trade makes terms like direct and fair trade really hard to pin down. We pay more than fair trade prices for our coffee, first of all. But we're buying for more reasons other than that the price has to be fair, we also need the coffee to be good! 

In Ethiopia more than 13 million people 
rely on coffee for income *
*Data from "Black Gold" dist. by California Newsreel


Is Direct trade an option?
For Ethiopia, most coffee comes from washing stations where hundreds or maybe thousands of people deliver their cherry, so while you can go visit the stations and meet the people who work there, you can't necessarily claim to have met the farmer and dealt direct. You also have to trade these coffees on the government platform, and they're doing their best to obscure the full traceability and where it's from. There are some private farms that can get around the ECX, they're few and far in between, but here you can visit the farm and speak to the owners and have a way of negotiation price with them in person. In complicated systems like Ethiopia we deal with exporters and importers who work on the ground there, sourcing the coffees and organising shipping to Europe. The Wote is from Seife who runs an import company called Ethiopian Beans in Sweden.

Are large government collectives getting in the way of direct sourcing?
Well, the ECX was put in place to start controlling and managing, stabilising and predicting the prices on all commodities, and they lumped coffee in under that umbrella with corn, wheat etc. But traceability down to individual washing stations is too wide a scope and multifaceted for the platform to cope with, and they seem to want to strengthen the 'brand names' of yirgacheffe, sidamo, limu etc instead of celebrating individual small places. The system is young and it has faults, and they keep promising to open a second window for those who prefer to know more than just "Sidamo" about our coffee, but it's still not truly there so we have to deal with people who have access to people who are registered as private farms and exporters, of which there are not many. I believe the Ethiopian government mean mostly well, wanting to get a grip of and stabilise a trade that historically has been very unstable to the disadvantage of many farmers, but perhaps a bit misguided and and they act a bit too fast sometimes, not considering the ramifications of what they do to the coffee trade, which is just a bit more complicated than wheat for example. 

Another country that does government organised trade platform is Kenya and their auction system. You have to be a Kenyan registered exporter to be at the auction in Kenya, so i have to go through someone else to be able to buy. The lot sizes vary a lot, the day I was at the auction watching the lots were anything from 10 to 140 bags. I as a roaster can't pitch up and buy coffee at the auction, so when I go there I go to see traders and exporters who cup what's on offer every week, we decide what to bid on and then they go bid at the auction. Or they already bought stuff they think is good and I get to choose form what they pre selected. Then we can go visit the factories (same as washing stations or wet mills) and speak to the managers there, but again, a lot like the Kiawamururu is only a small part of the yearly production of hundreds of small farmers, so again there is very little opportunity to trade 'direct', if your definition of that is negotiating price direct with farm owner.

World coffee exports amounted to 
9.58 million bags in June 2012*
*sourced International Coffee Organisation

How 'direct' is 'direct'?
The Guats we have on right now, Santa Clara and Culpan, are coffees the we bought from a UK importer who has an office in Guatemala and a representative there who does in fact visit the specific farms and growers and deals direct with them. I know him and the company well and I trust the relationship there to be fair and transparent and I know the prices going back in the chain are sustainable.

We have a container of Guatemala on the way that we traded direct as much as I could have in that I meet and talk to the daughter in the family who is representing them for sales, and they're selling some coffee on behalf of their neighbouring farms as well. They are set up to export their own coffee so they put it on a ship, get it all the way to the UK and then I take it from the warehouse to here, so they are the full link without any 'middlemen' as such.

Are 'middlemen' the evil harbingers of doom there made out to be in the coffee industry?
Middlemen have a bad rep but in coffee you're going to struggle to work without them, you need them especially as a small roaster, and they're not a bad thing as long as you choose them carefully and trust the transparency of the operation. With our El Salvador container, I buy coffee from Aida direct, as in I talk to her about volumes and price, and she acts on behalf of some of her neighbours in helping them get access to buyers like us who'll pay more for quality. But then I pay an importer, whose job it it to move containers on and off boats and get them cleared through customs and understands complicated paperwork, to deal with all that bit. So that's a middleman, but one I need and I'm happy to work with, because i trust them and know they'll get the coffee to me in a safe and timely manner, and at a cheaper rate than I could do myself, so that I can afford to pay Aida* more! 

*Aida Battle was one of El Salvadors first rejuvenating farmers who brought modern techniques and love and passion to a farming level.

Why do we see alot of verifiable 'direct' trade out of Latin America?
You do have an easier time in Latin America for sure, yes less backyard growers, farms tend to be a little bit bigger, many will have their own little wet mill and drying patios for parchment so that their coffee can be processed and separated as individual lots from the get-go instead of being lumped in the cherry that the other 100 people in your local area bring in to the central washing station that day. It's history, politics, economy, geography and culture, who know what exactly pushed any individual country into the direction they took when they did!

Sales of coffee dominate sales of hot 
beverages, making up 83.3% of the total 
hot beverage market in the U.S.*
*sourced SBDC NET Coffee Shop 2012 Research

As the last stop before reaching the customer is there something baristas can do to help balance the inequality found in some of the most favoured coffee regions?

Cafes can help by buying coffees like the Operation Cherry Red that the new Jirmiwachu is part of, Trabocca who runs the project invest a lot of money in helping the washing stations improve their machinery and equipment, which it turn means they can produce better quality  so that their members can get better pay. If you wanted to collect money for a specific co op that is of course doable, but you'd need someone like perhaps Technoserve or Coffee Kids or any other on the ground charity to help you get the money to the best place and make sure it's spent on what you want it to be spent on, and that it doesn't get wasted/not used/sold on etc. Because there are few farmers as such in Ethiopia, dealing with co ops also means you need to find one with a managing committee that won't just spend the money in their own best interest, unfortunately.

So there you have it. The way forward is much like a barndance. You bow to your partner but immediately look left to dance with the next guy who's just been dosey-doeing with a middleman who's in part co-op with the band playing the tunes. A strange system but with some tweaking we can see communities rewarded for great coffee production.
Giddy Up Coffee is now supporting Operation Cherry Red to bring some support to Africa and Coffee Kids for Latin America.

The links below are in the document but are repeated here:

1.Operation Cherry Red: A small scale initiative to reward farmers for great coffee production.

2. Square Mile Coffee Roasters: Personally sourcing and investing in countries of origin

3. HasBean Coffee Roasters: Personally sourcing and investing in countries of origin.

4. Direct Trade: A compiled group of ethical produce sourcing formed in the 80's. Was primarily importing basket crafts til the 90s.

5. Coffee Kids: Founded by Bill Fishbein, a coffee roaster from Providence, R.I., USA in 1988.

6. SBDC NET:  Is the official National Information Clearinghouse of the U.S. Small Business Administration. Great compilation of statistics and data on coffee sales.

7. International Coffee Organisation: Its Member Governments represent 97% of world coffee production and over 80% of world consumption.

8.FLO-CERT: A governing body for Fair Trade certification

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