101. ICO's Coffee Development Report 2020: The Value of Coffee

Feb. 2, 2021

The International Coffee Organization’s new 2020 development report, “The Value of Coffee,” is now available to download as a .pdf from ICO’s website! 

Second in a series, it focuses on the international trade of coffee. The first report, "Growing for Prosperity", was published in November 2019. With that edition, the ICO launched this flagship economic publication to provide an analytical underpinning to the on-going Structured Sector-Wide Dialogue, a process initiated by the ICO as part of the implementation of Resolution 465. The 2019 document presents an in-depth analysis of the root causes and impact of the coffee price levels and volatility. A paper co-authored by Ruth Ann Church is one of the citations in this report, drawing on research conducted by Michigan State University and local partners in Rwanda in 2015.

Highlights of the 2020 Coffee Development Report:

• A smart mix of public-private dialogue and timely information is needed to maximize economic benefits for farmers.
• Social and environmental sustainability are all addressed — as they must be, since all three: economic, social and environmental — are inexorably intertwined.
• Empirical analysis of the coffee Global Value Chain (GVC) shows that:
• the value of annual coffee exports has more than quadrupled from US$8.4 billion in 1991 to US$35.6 billion in 2018, with non-producing countries having played a significant role.
• higher-income regions such as Europe and North America accounted for 96% of roasted coffee exports and 53% of soluble coffee exports in 2018
• contributions of the coffee GVCs to the UN Sustainable Development Goals are discussed
• resilience (a favorite topic on this blog!) of the coffee GVC to stressors such as climate change and the current global pandemic are also addressed.

The full report was officially launched on 28 January 2021. It will be followed by a roadshow that will include presentations of the key messages in Member countries, at development institutions and in political forums with the aim of mobilizing resources and support for the implementation of the main recommendations.

100. New Sustainability Reports - Specialty and Total Market

100th post - woo hoo!                                                             15. January 2021

Over 80 data donors to the Transaction Guide

As a fitting 100th post on this blog, we are excited to share about the 2020 Specialty Coffee Transaction Guide , which was released two days ago, 13 January, 2021. You can click here to download the report. Artisan Coffee Imports is proud to be a data contributor this year. 

Download the Transaction Guide: www.transactionguide.coffee.  

Another useful coffee industry report, covering both specialty and commodity, is being released today: the 2020 Coffee Barometer. Download this report here: https://coffeebarometer.org/

"The coffee supply chain is closely tied to the top ten multinational roasters that represent over 35 percent of global trade in green coffee and engages millions of smallholders and workers." ~ 2020 Coffee Barometer

The two reports are synergistic, because the Coffee Barometer strongly urges more pre-competitive collaboration between importers and roasters on behalf of farmers. The "Transaction Guide" is a good example of what that kind of collaboration looks like. Indeed, on page 38, the Barometer discusses the value of Transaction Guide and its transparent price sharing as an alternative to pricing based on the C market. 

For the most part, the Specialty Coffee Transaction Guide, as it's name implies, focuses on the low-volume, but high dollars-per-pound part of the coffee world -- the high-quality specialty coffee market. Meanwhile the Barometer will teach you more about the largest roasters and importer multinationals and the high-volume, low-quality, low price-per-pound commercial grade coffee trade.

It was interesting to join a promotional webinar for the Coffee Barometer today. It was hosted by a media group in Amsterdam named CIRCL. Below are some highlights and a summary of a few of the comments from their high-powered panel of guests.

Moderator: Bahram Sadeghi, journalist

Speakers:

Sjoerd Panhuysen, Director of Research at Ethos Agriculture and editor of the Coffee Barometer. 

Kaitlin Cordes, Researcher at Columbia Center on Sustainability in New York City. She discussed the recommendations of the Jeffery Sachs report to the World Producers' Forum.

Vanusia Nogueira, Director, the Brazil Specialty Coffee Association (BSCA).

Mario Cerutti, Chief Sustainability Officer, Lavazza

Juan Antonio Rivas, Senior Vice President, Olam International.

I found Cordes' summary of the three recommendations of the Jeffrey Sachs report useful. They are:

1. Support each producing country to create a National Coffee Sustainability Plans, 

2. Create an international Coffee Fund of about 10 billion USD to support producer prices when they fall below a certain level.

3. Increase Domestic Consumption of coffee.

Key comments:

Less than $.005 additional price paid by consumers, for every cup of coffee sold, would make the 10 billion coffee fund possible. The criticism of this is that it is charity instead of fundamental structural change. The counter to that criticism is to think of it as the "user" side of the industry as shouldering some of the risk that currently is borne by farmers alone -- especially price and climate change risk.

A minimum farm size is needed in most countries. Diversification of income is a only a hedge and productivity improvement is only one step among many. 

According to Mario Cerutti, the "coffee crisis" is more than a crisis. It's not going away after a short time. He also commented that paying 10% of coffee exports per year into a coffee fund is not realistic. He says it will put roasters like Lavazza out of business.

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 members in 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 work—approximately 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)

93. It Pays to be a Member - Cooperatives Research

January 6, 2020

From 2015- 2018 the USAID Africa Great Lakes Coffee (AGLC) support program funded ground-breaking research in Rwanda. We'd like to share the findings from this research in a series of blogs - welcome to the first one! All the publications from the project can be found on the website of the lead partner for the project, Michigan State University (MSU): CLICK HERE for publication list.

Published October 5, 2016, the paper titled "Role of Cooperatives on Adoption of Best Management Practices & Productivity in Rwanda Coffee Sector" brings an analysis that can only be accomplished with a primary dataset that is large. The dataset for this paper is from 1024 coffee farmer households randomly selected in four different coffee-growing districts: Gakenke, Rutsiro, Huye and Kirehe.

The lead author is David Ortega, a young, exciting faculty member of MSU's College of Agricultural and Natural Resources. Much of David's past work has been in China, in particular with the meat industry and safety standards. His quantitative 'ag econ' work is recognized widely and he brought the AGLC research team his unique experience and skills in experimental design for surveys.

The co-authors on the paper include: Aniseh Bro, (then a Ph.D. student, now teaches at Appalachia State University); Daniel Clay, (then professor of Community Sustainability at MSU, now consultant); Maria Claudia Lopez (professor of Community Sustainability at MSU), Alfred Bizoza (then director of IPAR in Rwanda, now a professor at the University of Rwanda); and yours truly, Ruth Ann Church, (then masters student in Community Sustainability, now working full-time in coffee with the sheepskin in hand!)

83. New Views Shared at Farm Profitability Panel at SCA Expo

May 14, 2018

About 150 SCA Expo attendees joined a lively session on the topic of "Farm Profitability: Impact of Best Practices" on Apr. 20. The five panelists themselves came from five different countries.

• Ruth Ann Church presented data from Rwanda, wearing her "researcher hat" from Michigan State University;
• Paulo Van der Ven, Managing Director at RD2 Vision in Montpellier, France, shared a multi-country overview;
• Paul Stewart, Global Coffee Director at Technoserve and based in Ethiopia, shared data from Kenya and
• Mark Lundy, Senior Researcher at Centro Internacional de Agricultura Tropical, CIAT, in Colombia shared insights from their ground-breaking work in Nariño, Colombia. 
• Moderator Kraig Kraft, a CRS manager based in Nicaragua, expertly guided the session. 

Eventually, the session should appear as a podcast on the SCA podcast site. Watch this space!

The session started by introducing the audience to a simplified formula for profitability:



Kraft then outlined how each of these boxes includes a lot of complexity. 

• KGs represent "yield" or "productivity" of the coffee plant. We know productivity is highly dependent on agronomic factors like elevation, rainfall, soil quality, temperatures, etc.
• PRICE implies the "farmgate price" when we're discussing farm profitability, but often other prices are used in the research, such as the NY C price, FOB or EXW prices, "market prices" and government-set floor prices.
• COSTS implies the labor and inputs needed to cultivate the trees and harvest the coffee. But which labor? There is paid and unpaid labor. And which inputs? Typically, it's fertilizer, pesticides and herbicides, but there are others.
• PROFIT also has many types. There's profits (positive) and profit losses, to begin with. There is gross profit and net profit, and some people prefer to use the terms "margins", "net turnover" or "net revenue" or "net income" for the same thing. 

The research from each of the speakers emphasized a different part of this formula. 

The emphasis in Van der Ven's part was the relationship between KGs and Costs. He gave an overview of one of key insights from the SCA Farm Profitability report, which he helped write. Often farms where KGs (productivity) and costs are low are more profitable than others, all other things equal. This is surprising for some to hear, since it is often assumed that higher productivity always leads to more profitability.  First, he described how the progression from "less profitable" to " more profitable" on a coffee farm is not always linear. It's possible that costs increase for a few seasons before profits accrue. Secondly, Van der Ven showed how RD2's literature review of 11 different studies, including data from 10 countries, allowed them to create the following graph. It illustrates how low input farms have low yields and low production costs/ha, but are often still profitable.

Each circle represents a country and the size of circle-points is proportional to yield.

Low input farms have low yield, low production costs (x axis) and often are profitable (y axis) 

Source: 2017 RD2 Vision report for SCA.

Thirdly, Van der Ven makes an often over-looked observation. Coffee is unique, because with fruit trees, income is almost never zero. If the farmer does nothing the entire year, he/she can often still get some fruit (coffee cherry) off the tree and sell it. This doesn't mean there is profit, but it means there is some revenue, even when costs (investments) are negligible. 

Van der Ven concluded with the key take-away that more applied research is needed, as opposed to measurements and recommendations from ideal demonstration plots. He emphasized that real obstacles, costs and outcomes can be very different in "actual farm life" than that which is possible in a controlled experimental farm. Solutions for farmers need to be based on assessments of whether a new practice will realistically generate profits.

Stewart's presentation focused on how training can boost KGs without increasing Costs. His data was from a project in Kenya where farmers had been trained in "climate smart" practices. This list of practices included at least six practices that are in addition to the typical six practices understood to comprise "best practices." Stewart emphasized that these are practices that few smallholders currently implement, but they are low-cost or no-cost, easy and quickly impact productivity. The slide shows impressive results.

 

The chart shows how the trees on the demonstration plots (right side, n=18) fared seven times better than the average coffee trees in Kenya (left side, n=335). In other words, adoption of the climate smart practices resulted in up to a seven-fold increase in yields.

Church's presentation focused on measurements of the impact of PRICE on profitability. Sharing data from Rwanda and the Feed the Future Africa Great Lakes Coffee (AGLC) support program, she started with a slide showing the response to the farmer survey (n=1024) asking which three factors farmers would say are the biggest obstacles to deciding to invest more in coffee. "Low cherry price" ranked the highest, and topics like training and high costs ranked low.

Prices matter to farmers, more than getting more training or lowering costs. Source: AGLC data, 2016, n=1024. Innovation Lab for Food Security, Research Paper no. 32.

The presentation continued to show how in Rwanda over a three year period, when the farm-gate price for cherry rose 55%, there were significant increases in the number of farmers implementing best practices, profits went up (not surprisingly), and importantly, productivity rose 22%.  It is notable that this yield improvement occured in a year where there was a drought and farmers had no idea the higher price was coming.

Lundy's presentation elaborated further on the importance of PRICE. He shared insights from CIAT research on how to better understand the diversity of farms and farmer outcomes in a coffee-growing region like Narino. First, CIAT segmented farmers by significant characteristics like the percent of household income from off-farm wages (click here for details). Then, they categorized the markets into which farmers sell, noting the different PRICES that each market pays. By over-lapping the two, Lundy showed new insights into when and why farmers are profitable.

Production Costs - average (top bar) and 3 "types". Source: 2013 Narino, Colombia study by CIAT.

The three different markets are: Mass Specialty A, Mass Specialty B (with higher prices), and Microlots, offering the highest prices of all, but also the lowest volumes of purchases. By over-laying average farm-gate prices from these markets over the farm costs illustrated above, it was clear that only those farmers selling to microlot buyers would make a profit. The implications of this has motivated a successful effort to improve livelihoods in Narino, but the implications are also daunting when one imagines how many coffee farmers there are, and how few microlot buyers there are today. As a key take-away, Lundy re-iterated this point:

"The most important finding of the research is that we should not be talking about cost of production but costs of production. Different kinds of coffee growers have different efficiencies and different costs of production and these differences get lost when data are aggregated."

Conclusion: Kraft guided the question and answer session, which included questions about whether direct trade, on average, results in better profits for farmers. Another participant observed how corruption, like counterfeit fertilizers, can create so many extra costs for farmers. Kraft summarized the session by concluding that
finding the funding and expertise to conduct further research on these topics is paramount for the specialty coffee industry.