Tuesday, October 17, 2017

76. Tale of Two Coops: Insights on Determinants of Farmgate Price in Rwanda

Oct. 17, 2017

Rwanda is unique in many ways. Sometimes so unique, that even Rwandans are unable to clearly articulate how "their world" is different from other places in the coffee industry. The farm-gate price in Rwanda is called the "cherry price". Elsewhere in the world, coffee farmers understand that their price is largely determined by the New York "C", the price set daily at a commodity exchange in New York which has little to do with coffee farmers and a lot to do with speculators. In general, a good thing. Commodity trading provides transparency and easily referenced pricing. But a bad thing because, unfortunately, this market does not reflect true costs, especially for "specialty coffee". But let's not go there today. The point here is that this all-pervasive NY "C" price does NOT pervade directly to the farm level in Rwanda!

In Rwanda, the cherry price is determined by another price, the National Agricultural Export and Development Board (NAEB) floor price. It would be fair to say the NAEB floor price is influenced by the NY "C", but it is influenced by many other people, too.  Which people? People who have influence in coffee and politics in Kigali. Notice that definition does not sound like a definition of a "coffee farmer". And therein lies the controversy and challenging transition that is currently underway in Rwanda. The Rwandan cherry floor price determines the fate of 350,000 coffee farmers, and ultimately, the country's foreign exchange earnings, yet up until 2017, the "voice" of the farmer has been absent in its determination.

In the past year I was able to talk to two leaders of cooperatives in two different coffee production regions in Rwanda. The differences in their comments about what determines cherry price illustrates how and why a transition to including farmer "voice" in the politics that determine the NAEB floor price is so important to Rwanda's future. 

Cooperative A:“So many things influence coffee cherry price,” commented Jean Luc TWAKIRE (name changed), managing director of a well-established coffee cooperative in Rwanda. “Factors include whether a farmer is a cooperative member or not, the competitiveness of the region and the strategy of the cooperative itself. I’m willing to pay a high price, because I only buy high quality cherry. I need a high quality output.” Mr. TWAKIRE goes on to share specifics about the type of relationship he has with his buyers. He calls them “permanent” and willing to “reduce their profitability in order to help the cooperative in their sustainability.” In other words, one notices that the type of relationship the cooperative has with the coffee buyers is one critical variable in determining cherry price, on top of the others TWAKIRE mentioned. 
Bringing the coffee to get weighed at a collection site.
 
Where it counts: farmer record shows she has been paid exactly the NAEB floor price - 270 RWF/KG cherry until the floor price was adjusted down to 240 RWF.

Cooperative B: In a different area of Rwanda, the managing director of a different cooperative washing station, also well-established, we’ll call it “Cooperative B” has less “permanent” customers. The director, we’ll call him Theogene HABONIMANA, explains their pricing strategy this way, “we pay the floor price set by NAEB, keeping that first price low, and checking what the other washing stations will pay. Our price should be the same, not different.”  Then, at the end of the season they give the farmers a second payment based on the actual profits the cooperative received. “The second payment is an obligation.”


HABONIMANA and TWAKIRE’s descriptions illuminate how for many farmers, the factor most commonly cited globally as affecting coffee pricing, the NY “C” price, becomes almost irrelevant. Researchers on the Africa Great Lakes Coffee (AGLC) Support Program team have validated that for Rwanda’s 350,000 coffee farmers[1], the determinants of cherry price rest on four key factors:

The interesting point in TWAKIRE's comments (cooperative A), is the fact that for him, the NAEB floor price matters less than his relationships with his customers and the competition with other washing stations. Indeed, the AGLC research team found that while the NAEB floor price is the cherry price in regions where competition is weak (e.g. cooperative B's region), in regions where competition is strong and cooperatives have long-standing relationships with specialty coffee buyers, farmers receive prices around 33% above the floor price every year. "We're used to paying above the NAEB floor price," says TWAKIRE. "That happens every year."

What this means is that NAEB has an especially vital role to play. It is imperative that they continue to use data and evidence to inform decision-making about the floor price.  The data gathered by the AGLC team from a survey of 1024 coffee farmer households, represents, in many respects, "the farmer voice" that is missing at the negotiation table.  That data is time-limited, though. Therefore, NAEB must continue to find ways to keep the negotiations objective and fairly representing the farmers' interests, which in the end, are the interests of the country.




[1] NAEB, 2015 Coffee Census

Thursday, October 5, 2017

75. JDE Assessing the Power of Lean

Oct. 5, 2017
In the September 2017 Issue of Global Coffee Report, an exciting article appeared about a six year initiative Jacobs Douwe Egberts (JDE) created in Honduras. Click here for the article.  SIX years is a long commitment. Many USAID projects only last three to five years. Six years is enough to see the impact of Lean efforts across a large geographical region. Looking for clues as to whether the JDE - Cohonducafé Foundation project is a Lean project, a few can be found. The key one was this:

“We conducted value-chain analysis to identify what our priorities should be,” Project Manager Edgar Joel Castro explained, detailing how the team at Cohonducafé Foundation worked with staff at JDE to evaluate key indicators in the market and narrow down the project’s objectives.  A "value-chain analysis" that is well-done at a high level of the supply chain is an excellent tool to help link many "value stream analyses" once you start drilling down.

The rationale for the strategic analysis couldn't be clearer. "The industry that their grandfathers once knew and operated in has changed drastically in line with increasing global demand for the commodity, climate change, greater instance of pests and diseases and other economic factors," (GCR).

The key impact metric may sound small, "overall productivity has increased 25 percent" but if we assume this is across all 15,000 farms in the project, that is actually a very impressive bump to Honduras' 2016 production of 5.93 million 60 kg bags, (USDA’s FAS annual GAIN Report), which comes from 97,000 producers (Instituto Hondureño del Café report 2015/2016).

Another helpful illustration in the Honduras story is how the project united many players along the value-chain. One alone could not have achieved the same result -- even the "largest one with the most money." Here's how they describe the collaborative group:

Through the foundation’s connection with Cohonducafé, the largest exporter of coffee in Honduras, and partnership with JDE, the project gained access to the coffee companies’ extensive networks and superior logistics. “We had direct business relationships with more than 40,000 producers,” says Castro. “We believe that if they weren’t part of this, it would have been much more complicated.”
The foundation also has strategic alliances with 30 different organisations, from universities and municipalities to local and international NGOs.

This example of a large project, combined with examples from the small projects Artisan has lead in Rwanda and Burundi, should encourage other industry players to take Lean training seriously for their strategic supply chain efforts. Invest in the sustainability of quality coffee supply, start your value chain analysis now with help from Artisan Coffee Imports.

Wednesday, September 27, 2017

74. IWCA Invited to Present at Cote D'Ivoire ICO Statistics Meeting

Sep. 25, 2017
In his opening speech at the 2017 IWCA Convention, Jose Sette, the new Executive Director of the International Coffee Organization (ICO) communicated that ICO members should not only improve their capacity to provide employment data on men and women, but also recognize the strong contributions of women.

The ICO is considering new rules for the member countries' submissions of data. Currently, countries submit data focused solely on production: kilograms, bags and beans. On September 25, IWCA was invited to present at a special meeting of the ICO Statistics Committee in Cote d'Ivoire.  The narration of IWCA's presentation to ICO members is available on the IWCA You Tube Channel, or click on the link below.

Saturday, September 16, 2017

73. Lean Tour in Burundi - Impactful for Dusangirijambo

Sep. 14, 2017
Guests admire the fine float tanks at Heza washing station.
Kayanza, BURUNDI


54 participants, including 10 women, toured three washing stations to learn and observe processes that strengthen quality.  The participants were primarily from Dusangirijambo, but included also leaders from SOGESTAL Kayanza, Kirimi station and Long Miles Coffee washing station called “Heza”.

The tour was a unique opportunity compare and contrast processes and infrastructure at 3 different washing stations in the same zone, Kayanza, but with different ownership structure:

  • ·         SOGESTAL is private and state owned
  • ·         Heza (Long Miles Coffee) is privately owned
  • ·         Dusangirijambo is a cooperative under the COCOCA umbrella of Burundian cooperatives

At the end the group received a tour of the HOROMAMA dry mill (formerly Webcor) and there was a formal presentation and small celebration at the dry mill also.

Some participants noticed some areas of the SOGESTAL that would not pass a Lean 6S inspection (see photos below).

Coffee warehouse doubles as mushroom farm... hmm.

No evidence of Lean "6S" tool in use here.

Best practice is for parchment to be stored 30cm from the wall.

Jeremy (Heza manager) thinks Dusan and SOGESTAL staff especially appreciated learning about the following innovations at Heza (Long Miles Coffee):
  •  Paying money for building high-quality floating tanks
  •  On-site manufacturing of organic manure to save money

  •   The double and triple-layer-tables drying system for saving space for coffee drying
  •    Recycling system for water
  • Pipe from the top of the hill, where coffee is delivered, down to the machine, as a help to farmers

These are innovations Heza had implemented before Artisan arrived in January 2017 and began lean training in Burundi.  They are excellent examples of ‘lean thinking’, however, and therefore they were important initiatives for Dusangirijambo to see. THANK YOU - MURAKOZE - to Long Miles Coffee - Heza, for their generous sharing.






Dusangirijambo had the opportunity to share the new signage they’ve installed and their new machine, new grading channels and water recycling pits that are still under construction. The signage is directly related to Lean concepts – the other items relate to other projects the cooperative is engaged in, such as receiving Rainforest Alliance certification.

It is unclear if Dusangirijambo leadership shared efforts to improve quality metrics at reception and at the machine area. These were the topics addressed in the critical “peak season” KAIZEN projects. We hope they have embraced those KAIZEN learnings, since only motivated employees can maintain machines and other expensive infrastructure. Only well-implemented quality control of incoming raw material (cherry) can improve the quality of the coffee the cooperative has to sell. New machines and cement help, but they cannot replace strict quality control that is “owned” by the frontline workers






From the photos of Heza above, compared to the photos below, one can imagine the process and infrastructure improvements the Dusangirijambo leaders may now be considering for the upcoming, 2018, season.




September is “the start” of the coffee season in this region – a good time to make plans and start new things. For example, the float tanks at Dusangirijambo require sorting in small batches, because the baskets are small. It requires a lot of bending over and makeshift “catchments” for the floaters (the waste).

Lean practices emphasize eliminating wasted motion and wasted time. Not only could the processes for the farmers after they arrive at the washing station be improved (for example with large, solid float tanks and a reception area paved with concrete), but the time required to sort and process cherry at the reception area of the station could be reduced if the farmers arrived with bags of cherry that had fewer defects. What if the average bag of cherry arriving at the washing station was 90% perfectly red-ripe cherry instead of only 75%? What kind of lowered costs and increased profits might accrue to the cooperative? These are the kinds of questions employee groups are asked to consider as they design their KAIZEN projects. Dusangirijambo’s employees got very excited when Artisan worked with them in April 2017 to design a new cherry quality metric to be implemented before weighing

The “Lean Tour Day” ended at the HOROMAMA dry mill in Kayanza. Many participants had never seen a dry mill operation before. The HOROMAMA dry mill has implemented a “Lean Specialists” committee since their leaders attended Artisan’s lean training. Several clues indicate lean practices, such as painted guidelines on the floor and an emphasis on cleanliness (cloth under visitors’ shoes in lower right photo) and safety (safety gear on worker).