THE COFFEE TRADE
Fair Trade and Direct Trade are two different models for getting coffee beans from their growing place to the Western cup. There is some confusion over the differences between these processes and how they affect both the growers and the consumers of this popular commodity.
So here we go, a quick-and-clear guide to how your espresso made its way from Mexico to Massachusetts (and everywhere in between!)
The conventional trading process is a lengthy one, but begins with the farmer and his beans. Unless this farmer runs a large plantation or is involved with one of the trading models described below, his beans will most likely be bought by anexporter [code name: coyote]. The amount the grower is paid is loosely based on prices set by the New York Coffee Exchange, (more on that later!) but all too often, coffee is grown in remote locations far from up-to-date market information and the grower is forced to sell for an amount far lower than the going rate, allowing coyotes to reap the real rewards for a years' worth of hard work. The coyote exporters take these low priced beans and sell them in bulk to importers, who turn around and sell the beans (in smaller loads) for an even higher profit to roasters. This is where the real money is made, as roasters take the green beans, convert them into a drinkable form and then sell them in packaged form to retailers (coffee shops, stores, mail-order).
The Supply Chain:
Farmer → Exporter → Importer → Roaster → Retailer → You!
By the time that coffee hits your cup, its “value,” or price, has increased by 1200 to 1500%, one of the highest markups in any market. As the first step in the supply chain, farmers receive very little profit for the importance of their efforts.
The number of steps in the supply chain limits the farmers’ market power, often forcing them to sell beans for less than it cost to grow them. This is a driving force in the growing debt and impoverishment of coffee farmers all over the developing world.
THE FAIR TRADE MODEL EMERGES….
…in an attempt to remedy pricing discrepancies and provide farmers with a living wage [that is, more than the $1 a day received by most coffee farmers].
Fair Trade differs from conventional trade models by taking the exporter (the coyote) out of the equation, allowing farmers to sell directly to importers. Under this arrangement, farmers ally together in democratic cooperatives, receive Fair Trade certification, gain direct access to credit and international markets, and are thus guaranteed a minimum price for their beans.
Should the New York Coffee Exchange dictate prices higher than the Fair Trade minimum, the growers receive an additional premium. This pre-arranged security agreement between grower and buyer means that coffee farmers are financially insulated from price volatility in the market.
The Supply Chain:
Farmer → Cooperative → Importer →Roaster→ Retailer→ You!
Some of the farmer’s funds are pooled by the cooperatives and directed towards agricultural and community development, including schools, medical clinics, business support and best-practices, and environmental safeguards.
THE DIRECT TRADE MODEL ENTERS THE FRAY….
Instead of working with cooperatives, the Direct Trade model encourages roasters to partner directly with growers to negotiate a contract that will allow high quality coffee to be exchanged for a fair price. The key word here is transparency, and roasters make a point of revealing their trading relationships.
The Direct Trade model attracts roasters who seek specialty coffees that will sell for a premium in Western markets. These roasters work directly with growers to improve quality and environmental and business sustainability. This is a flexible market based on the demands and capacities of individual roasters and growers, but one that realizes and rewards efforts to increase quality.
So, as your morning cup becomes more delicious, the grower and the roaster involve in its production are earning higher wages. The average income for coffee growers’ under the Direct Trade model have been roughly 25% higher than the Fair Trade minimum!
The Supply Chain:
Farmer → Roaster→ Retailer→ You!
The Direct Trade model does not demand that the price premiums paid to producers be used for community development, although they often are. Growers First is in a unique Direct Trade arrangement, therefore, by working with both individual producers and also with cooperatives established in coffee growing communities. This arrangement is cost-effective for the producer and allows for community-driven and directed improvements across the board. A more thorough explanation of the Grower’s First process will be outlined in the next post!
If you’ve gotten this far, congratulations! Your coffee consumer education is well on its way! Feel free to post any questions or clarifications, and stay tuned for the next installment in how coffee really gets from bean to bag!