Thursday, July 2, 2020

97. 'Cooperative Advantage' article in Roast Magazine

Cooperatives like TUK in Rwanda offer farmers many benefits
(Photo credit: Clay Enos and Sustainable Growers)
"Cooperative Advantage: What Do Cooperatives Mean for Farmers, Roasters and Consumers?" appears in the new July/August issue of Roast Magazine.

In this blogpost we'll share the highlights, but we hope you'll consider hopping over to Roast's website to purchase the issue - either digital or hard-copy. $7 for the single issue or $35 for 1 year subscription.

Co-authors Ruth Ann Church and Dr. David L. Ortega review the growing interest in coffee produced by cooperatives, including two papers published in peer-reviewed journals by Michigan State University research teams. The first paper offers quantitative results on farmer productivity and household welfare from a study from Rwanda and the Feed the Future Africa Great Lakes Coffee support program. The second paper shares results from a coffee shop field experiment with consumers of pour-over coffee. It captures willingness-to-pay for coffee based on the organization of the producers, namely coffee that is labeled 'grown by farmers belonging to a cooperative'.

Insights from these quantitative studies bring credibility to qualitative work that has been popping up across the specialty coffee industry over the past year. The Specialty Coffee Association's Kim Elena Ionescu interviewed Merling Preza of PRODECOOP at Re:Co 2019 in Boston. The non-profit TWIN published a 2019 report on producer organizations that gleaned insights from 31 producer organizations in nine countries. The common theme is that the farmer cooperative can be a valuable node in coffee value chain, providing benefits to farmers that altruistic consumers, especially millennials, are expecting in their specialty food choices.  

Cooperative members in Rwanda mitigate
soil erosion for their coffee plot.
Quantitative Results
After reviewing the context of today's consumer demand for transparency and a history of problems that come with cooperative leadership, key quantitative results are shared. First, the authors of the Food Security article find that farmers who are cooperative memberin Rwanda score significantly higher on an “adoption of best practices” index than coffee farmers who are not co-op members. The farmers belonging to cooperatives also receive more income from their workapproximately 18 percent higher revenue per coffee tree. These elevated metrics, the researchers conclude, begin a virtuous cycle for farmers who belong to a cooperative. They are more likely to have healthy soil and plants, which leads to higher productivity per tree, which then lowers cost of production per kilogram cherry, and in turn improves net income per tree. Indeed, productivity (kilos of cherry per tree) of cooperative members is 20 percent higher than that of non-members, and cost of production (Rwandan Franc/kilo cherry) is 24 percent lower than farmers who are not cooperative members. 
Courtney Gates at Espresso Elevado
in Plymouth, MI prepares a pour-over.
(Photo credit: Teresa Pilarz)

The article focusing on consumer willingness-to-pay (WTP) in Food Research International finds that when personality traits are used to segment consumers, a strong willingness-to-pay for coffee from farmers organized cooperatively can be identified. The results indicate:
  • An average WTP of an additional $1.31 per 12-ounce cup of pour-over coffee, in a specialty coffee shop setting, when the cup descriptor is “coffee grown by farmers belonging to a cooperative.”
  • Consumers with higher subjective knowledge (consumer’s self-evaluated knowledge of coffee) had lower premiums for cooperative-grown coffee, suggesting that these consumers may base their product valuation on sensory characteristics more than descriptive information of production structure.
  • The personality traits of “conscientiousness” and “extraversion” increase WTP and a higher level of the personality trait of “agency” or “outspokenness” decreases WTP (For more on the Big Six personality traits, see Bazzani, 2017, in Food Quality and Preference).
  • Age was the only statistically significant sociodemographic determinant of WTP, with older consumers being willing to pay slightly more on average.
Tough Questions Arise
These results bring up complex topics long debated in the specialty coffee industry. For example, how do consumers value basic knowledge of the producer organization type (e.g. cooperative) vs. a voluntary sustainability standard such as Fairtrade? What role does the flavor and taste in the cup play in developing consumer WTP and repeat purchases? If a cup of coffee supplied by a farmer cooperative earns a premium over other coffee at a cafe, for example the $1.31 extra measured in the experiment, what portion of these funds makes it back to the coffee grower? These are all good questions which are recommended for further research.
Lee Harrison with Joe Coffee in
New York City 
(Photo credit: Joe Coffee)

What Should Roasters Do With the Info?
The “personality traits” study raises the question of whether psychometric data on coffee consumers is already in use at roasting companies. One specialty roaster, Joe Coffee in New York City, updated its overall brand strategy a few years ago with market research ensuring employee values and brand values were aligned. The next step in brand development, according to Lee Harrison, Joe Coffee’s senior director of coffee and roasting, is to invest in consumer research to better align the brand with customers. “It’s important to get data about what people want so that we can refine our assumptions and connect with consumers in a relevant way,” he says.

Would research that identifies willingness to pay based on personality traits be of interest at Joe Coffee? Harrison replies affirmatively. “Not just for sales and profitability here in New York, but for relationships at origin, too. If farmers had this information, they could better market themselves, and it would make our job of marketing their coffee more efficient,” he says.

Recognizing that the results of this consumer study are limited by its setting, the findings still have important implications for many stakeholders in specialty coffee. It helps us to consider the diversity of coffee consumers beyond sociodemographic segmentation and instead make marketing and supply decisions with long-lasting intrinsic characteristics in mind. Combining these consumer insights with confirmation from the other studies on cooperatives’ positive impacts can encourage all who work with cooperatives and strive to make coffee better.
Sunset at Kopakama cooperative near Lake Kivu, Rwanda
Leaders of the Ejo Heza women's group appreciate one
of the roaster customers, Victrola Coffee, who pays a premium.
The Feed the Future Africa Great Lakes Coffee support program launched in August 2016 with
a workshop in Kigali, Rwanda. (Photo credit: Michigan State University)


Wednesday, May 6, 2020

96. Coronavirus and Coffee: Interviews with Ten Coffee Farmers in Rwanda

May 6, 2020
Ejo Heza members harvesting in April 2017
Artisan Coffee Imports builds relationships with coffee farmers by listening to them. Harder than one might think, but it is truly powerful when it happens. Two weeks ago we arranged for a short survey-style interview with ten of the Ejo Heza farmers who produce Artisan's flagship imported coffee. Ejo Heza is a group of female farmers formed in 2011 with the support of their parent cooperative, Kopakama, in the Rutsiro district of Rwanda's Western Province. Over the years, the group has grown from 200 to 400 members. They have two community plots which they cultivate together, and each member also has coffee trees at home.

In nine of the ten interviews, the farmers said that labor was an issue, either paying for it, or finding it, or both. This is the main "finding" related to Coronavirus. To skim the actual farmer comments, see below.

It's important to note the context of these interviews. They were conducted:
Grace Izerwe - Quality Control Intern
  • By phone by Grace Izerwe, Kopakama's Quality Control Intern, who is also a trained researcher, trained coffee cupper, roaster and barista, and holds a B.S. in Rural Development and Agribusiness from the University of Rwanda.
  • During peak season, meaning the height of the harvest, when farmers are likely going to the coffee plots several times a week or daily to harvest cherry. Most likely they are using every able-bodied person in their household to help with the harvest, and hiring 'daily workers'.
Of further note:
  • There tends to be a "going rate" for daily labor in rural areas of Rwanda. Today the average daily rate is 1000 Rwf per day, (around $1.10) for someone to work from about 7am to 5pm.
  • The short survey was gathering feedback on two topics, the new "300 Club" started this year by Kopakama and the impact of Coronavirus on the farmers themselves. Here we will share about the coronavirus impacts and a future blog will discuss the 300 Club.
  • Labor is the most important component of cost of production probably in all coffee producing countries, but even more than some in Rwanda. Labor was estimated to be 75% of total cost of production in a study with data collected in 2015. (Click here for the study by Ruth Ann Church.) Of total labor, harvesting accounts for 36% of costs. 
Take-away: don't be fooled by what may seem like low-cost labor. It is a huge part of the farmer's budget and therefore doubling it, as appears to be the case for Rwanda's farmers, is going to have a likewise dramatic impact.
Ejo Heza farmer checks the quality of a coffee tree.

(Names have been changed to maintain anonymity.)
1. Epiphanie: "The stay home period is preventing us from harvesting as usual.  Since we are respecting the distancing (1m) between workers, I hire less workers than needed." (245 trees; 9 years as a member of Ejo Heza; 4 children.)

2. Floride: "The stay home period is affecting me in ways of hiring more workers because I have to pay workers the same daily salary as if they have worked the whole day." (1800 trees; 2 years as a member of Ejo Heza; 3 children.)

3. Perpetue: "The stay home period is affecting me in harvesting because before I would use 4 workers and now I am using 2 workers because you cannot find those casual laborers to help you. People are staying at home. This means those 2 available workers spend much time in harvesting. Sometimes they do not even finish the harvest of the good cherries before the delivery time set by the buyers." (660 trees; 3 years as a member of Ejo Heza; 0 children.)

4. Clementine: "It is not easy with the distancing instructions of allowing only 2 people harvesting on 1 coffee tree at the same time." (1008 trees; 6 years as a member of Ejo Heza; 3 children.)
Ejo Heza members sort cherry at the washing
station - April 2017

5. Adele: "The challenge is that I can’t afford to protect my workers with masks or hand sanitizers." (670 trees; 9 years as a member of Ejo Heza; 6 children.)

6. Seraphine: "I used to sell banana wines in bars, but now now they are closed. So it is not easy to get money to pay workers for the harvest during this lockdown." (500 trees; 4 years as a member of Ejo Heza; 5 children.)

7. Julienne: "The distancing and use of less workers is affecting me particularly as a site collector. Due to the distancing requirement, I am not allowed to get close to the farmers to work together with them on checking the cherries which they have delivered.  This takes me more time and makes some losses when I am sorting alone with workers while farmers have already gone back home. The other challenge is the sanitary and hygiene requirements. I have to always buy hand sanitizers, soaps and water to make sure everyone arriving at the site is safe from the coronavirus." (1030 trees; 4 years as a member of Ejo Heza; 4 children.)

8. Beatrice: "As many businesses closed, we are not able to invest in harvesting because we lack money to pay workers in this period of lockdown." (315 trees; 4 years as a member of Ejo Heza; 2 children.)

9. Peruth: "This lockdown is challenging me in hiring workers. Many are staying home and the available ones cost much money for harvesting." (1500 trees; 3 years as a member of Ejo Heza; 0 children.)

Those are the comments about the labor challenge. A comment during the interview from our tenth participant references a challenge unrelated to COVID:

10. Dorthee: "It is really hard in this period of rain sometimes. You can’t harvest due to heavy rains and you have to go the following day to pick the specialty coffee." (800 trees; 3 years as a member of Ejo Heza; 2 children.)

To learn more about how Rwanda's coffee sector is faring in during the pandemic, head over to our other blog, Artisan Coffee in N. America, by clicking here.







Sunday, March 15, 2020

95. New York City - International Women's Day Celebration

Mar. 15, 2020
Coffee Project NY's certified coffee lab hosed the Mar. 8 event.
Last week, March 8, was the official International Women's Day (IWD). Lots of groups celebrate empowerment of women all month long, so hopefully this post inspires you to participate in any way you can!

An exciting event took place in New York City on March 8 with a bunch of coffee people. CoffeeFest NYC was the reason many of us were in the Big Apple and the rest of the 20 people who joined were from the area.

The collaborative effort started with a few phone calls between Artisan Coffee Imports and roasters across the country, dreaming up IWD event ideas.  On the phone with Amaris Gutierrez-Ray, founder of @womenincoffeeproject and a roaster @JoeCoffee in New York, the idea sparked to have a documentary film screening at a cool New York space. Amaris reached out to Chisum Ngai ("Sum"), owner and founder of @coffeeprojectNY who readily agreed to donate her spacious, brand-new roasting plant / espresso bar / certified SCA training lab in Queens for the evening! Amaris dipped into her amazing network again to find exciting panel speakers to follow-up the film, including Lane Mitchell of @cafefemininocoffee and Gabriela Figueroa-Hueck of @ramacafenicaragua in Nicaragua (who, unfortunately, had to cancel at the last minute). Yours truly (Ruth Ann Church) agreed to be on the panel and Amaris moderated.

The evening began with networking / happy hour time with wine, cheese and crackers and tasting of brewed women-grown coffees. The 20 guests included journalists, Lisa Espenshade of Grounds for Health, Andrea Pacas from El Salvador, baristas from NY and places as far away as Connecticut and coffee company owners from Virgina and Georgia. It was tough to pull away from conversations and let the one hour movie begin. 
The film weaves together beautiful scenery and stories of several different coffee-growing families in Oaxaca, Mexico along with commentary from the importing / roasting / consuming side of the coffee value chain. 

Panel Discussion After the Film
After the film, the moderated discussion highlighted the complexity of improving women's empowerment in communities like this one in Oaxaca. One participant asked if all coffee communities have men who are as supportive of women's rights as those who are interviewed in the film. Lane Mitchell, Cafe Feminino Coffee, confirmed that supportive men, unfortunately, are still the exception in rural communities of most coffee-producing countries where she visits. Still, they exist and the more they are supported for their belief in equity by roasters who buy their coffee, the more likely these beliefs will spread quickly.
Sum (L) and Lane (R)




Another discussion point between the panel and the audience was where the "onus" lies in the coffee value chain to spark changes. Is it with the consumer, as one industry leader proposes in the film? One participant thought that is naive and that the consumer expects those with power, large roasters and importers, to generate the initiatives that drive change. In the end, there was concensus that everyone can do something in their own community at their spot in the value chain. Even just talking about the importance of gender equity in all communities is building awareness that makes a difference!


MC Amaris introduces the film.

Donations Needed!
Kimberly Easson of Partnership for Gender Equity remarks during the film that while roasters today make substantial investments in sustainability of coffee, comparatively few dollars are ever invested in coffee gender equity work. Therefore the organizers took up a collection and recently announced $125 was donated by the small crowd to the Partnership for Gender Equity.

For those who would like to make a further financial gift, the following non-profit organizations are suggested:


(Lto R) Amaris, Sum, Ruth Ann, Lane



THANK YOU to all who came to the Mar. 8 event. We hope to participate in a similar effort next year!








Wednesday, February 12, 2020

94. Cost of Production - the basis for understanding price

Feb. 12, 2020
Adele (L), a coffee farmer in Rwanda,
talks with researcher Ruth Ann (R).
Cost of production (CoP) is an accounting term. It refers to the "cost of production of any item or unit." Most definitions talk about three components of CoP:

  1. Raw material
  2. Direct labor costs
  3. Overhead costs (e.g. management salaries, office supplies)

CoP gives the accountant a value for the costs incurred to produce a product or service. Once CoP is known, then profitability of the product or service can be calculated more easily.

A long lamented issue in the coffee industry is the difficulty to get a measurement, a value, for CoP for 1 kg of green coffee. More and more, the discussions about the "price crisis" and "fair trade" are focusing on how problematic and core this issue is. Say Roaster X just paid $2.75/lb FOB, about $6.05/kg FOB for green coffee. Is it a good price? It might be. The correct answer depends completely on the producers' costs.

At Artisan Coffee Imports, we have a perspective on this problem that goes back to our automotive roots. I grew up in southeastern Michigan and in an earlier part of my career I was a non-profit adviser to small manufacturers supplying the big auto companies. The companies that did well were the ones that had a fairly good understanding of their CoP, which enabled them to have productive discussions with their buyers about price.

After getting started in coffee around 2007 and seeing the parallels in coffee's long supply chain, I was eager to work with those who could help me understand costs and prices. Fortunately, I had the opportunity to be part of an amazing research project, the Feed the Future Africa Great Lakes Coffee support program in Rwanda and Burundi, from 2015 - 2018. My participation on this project enabled me to live in Rwanda for a year, and to utilize a large, new dataset to define and analyze cost of production of coffee in Rwanda.

In short, I wrote my masters thesis for an M.S. in Community Sustainability degree from Michigan State University on this topic. "Estimating Farmer Cost of Production: Implications for Sustainable Growth in Rwanda’s Coffee Sector" is the title of this 65 page labor-of-love, completed in August 2017. I've recently been able to format at least the executive summary to be more reader friendly, and therefore would like to share a link to the entire document HERE.

Summary of a Masters' Thesis
In case readers of this blog do not have time to read a 65 page thesis, I'd like to share a few highlights here. Tables and graphs are often the most interesting parts of any research paper, so let's focus on a few of those. In the literature review, I share Table 2: a summary of the results of 10 different coffee cost of production studies from around the world.

Table 2:  Ten CoP studies with country and CoP result


Sorted by country, then highest to lowest CoP

Study #
Study (Author – year)
Country
CoP Result
US$ per lb. green coffee
1
USAID – AGLC – 2016
Rwanda
$0.64
2
Technoserve, 2011-2013
Rwanda
$0.26
3
NAEB – 1990s
Rwanda
$0.05
4
TMEA – Integrity – 2014
Burundi
$0.75
5b
COSA – 2015b
Costa Rica
$1.96
5c
COSA – 2015c
Guatemala
$1.32
5e
COSA – 2015e
Nicaragua
$0.92
5f
COSA – 2015f
India
$0.72
5g
COSA – 2015g
Vietnam
$0.52
5a
COSA – 2015a
Kenya
$1.52
6
Nyoro, Wanzla & Awuor 2001
Kenya
$0.68
8a
CIAT/CRS – 2015
Colombia – Narino – Off-farm
$2.38
9
IDH – Technoserve 2014
Colombia
$1.66
8b
CIAT/CRS – 2015
Colombia – Narino – Specialist
$1.58
8c
CIAT/CRS – 2015
Colombia – Narino Diversified
$1.40
5d
COSA – 2015d
Colombia
$1.12
8d
CIAT/CRS - 2015
Colombia nat’l avg.
$0.92
7a
Committee on Coffee Competitiveness, 2015
Colombia – state A
$0.83
10
CRECE-UTZ, 2014
Colombia
$0.78-$0.95
7b
Committee on Coffee Competitiveness, 2015
Colombia – state B
$0.72
7c
Committee on Coffee Competitiveness, 2015
Colombia – state C
$.68

Table 2 shows ten of the twenty or so papers reviewed for the study. The ten were selected because they give clear estimates of CoP. Using US$/lb green as a unit of measure to enable comparison, the range of values for Rwanda is $.05 to $.64. Integrity’s milestone study for Burundi estimated $.75/lb green for 2012. Estimates for Colombia range from $.68 - $2.38/lb green. This wide range of values can be attributed to both the underlying differences in costs across time and across regions and countries, as well as the variety of methodologies used in the estimation formulas.

After the literature review, we review the methodology of the research, especially the manner in which the survey was conducted in 2016. It was conducted with 1024 coffee farmer households randomly selected from farmer lists from 16 washing stations in 4 selected coffee-producing regions of Rwanda (Huye in the south, Rutsiro in the West, Kirehe in the East and Gakenke in the North.) So the calculation to understand the sample size of 1024 is 16 coffee washing stations x 64 farmers from each. This is a unique and extremely valuable database, providing the basis for establishing many new insights on Rwandan coffee, not just cost of production. Click here to see some of the publications that have already come out of this dataset!

CoP Punchline
To share the "punchline" first, we find the average CoP in Rwanda is 177/RWF/kg cherry (see Fig. 2 below). These costs for many farmer groups are higher than the average cherry prices being paid in Rwanda. This has serious implications for Rwanda’s long term production trend of specialty coffee. 177 RWF/KG cherry converts to $.64/lb. green, a more universally comparable metric, using Fx rate of 790 Rwf/$1 and cherry to green ratio of 6.4.

A key finding from the report is the confirmation that similar to other crops in many countries, cost of production in coffee in Rwanda tends to be lowest for the largest farms. The number of trees in on a coffee farm is significantly and inversely related to CoP (see Figure 1 below). It is recommended that this finding be used to guide both the design and the evaluation of farmer training programs. Programs should seek to target their resources to the size of farmer that will benefit most. 
Figure 1: CoP/Kg cherry is inversely related to number of trees in Rwanda.

CoP and Prices
More and more, the specialty coffee industry is realizing that programs and, importantly, pricing may need to be tailored by farm size to achieve sustainable margins in all size groups, (Trewick, 2015). For example, as shown in Figure 2 below, the floor price for cherry in Rwanda was set at 150 RWF at the beginning of the 2016 season (see line A in figure 2). On the left side of the graph, one can see how the smaller farmers will lose money when the cherry price is 150 RWF/kg cherry, whereas large farmers with 1001+ trees (20% of the sample in this research) make a slim margin, because their cost of production is below the average and below the floor price.
Figure 2: CoP/KG Cherry by Number of Trees with the 2016 cherry floor price
Based on these findings, stakeholders in Rwanda might look at other aspects of those with very few coffee trees, such as the inability to join cooperatives due to the fact that membership usually requires a minimum number of trees. A minimum tree requirement of 200 – 300 trees is common.  On average, cooperative membership has been shown to significantly correlate with lower cost of production in Rwanda (see section 6.2 of the report). With a holistic look at the situation of the “smallest of the small” farms, appropriate and specific interventions that would help create profitable scenarios for these farmers could be designed. 

Conclusion
Hopefully, these few highlights give a glimpse as to why understanding cost of production can be valuable. I know it has helped me as an importer to have confidence in my contracting methods and ways in which I interact with the producer organizations from which I buy. I tend to have a lot more emphasis on the cherry price paid to the farmer than other buying groups. Since I understand average cost of production is around 177 RWF/kg cherry (in some areas I have more numbers more specific for that exact geographic area), I push hard to get at least 300 Rwf/kg cherry to the farmer, roughly $1.50/lb green (using foreign exchange rate of 790, as used in the year the thesis was written). 300 Rwf/Kg cherry is the value the farmers told us in the survey was the value that they need to be profitable. As a buyer, I can see 300 Rwf/kg offers a reasonable gross margin to the farmer (30-40%), even those who are small farmers with CoP much higher than 177/Rwf/kg. We believe in the benefits that come to everyone in the supply chain when farmers are compensated for all the risk and effort required to grow great, specialty grade coffee, year after year.

Questions?
Have questions about cost of production? Please contact us at rachurch@artisancoffeeimports.com .