90. "No Such Thing as a Commodity" Shows the Way for Producers

Feb. 1, 2019

A new report by the United Nations International Trade Commission (ITC) titled "No Such Thing as a Commodity" has an important and welcome message for producers of specialty coffee - they can overcome the volatility and low value of commodity coffee pricing. The report is also a valuable addition to the body of literature which recommends strategies to increase the value of green coffee, and thereby raise per unit prices paid to producers. The economists at ITC should be thanked for their work highlighting this topic, and timing couldn't be better.

The report boosts recognition that large commodity markets can and do already include examples of producer organizations which leverage marketing and IP strength to achieve non-commodity product attributes. These attributes include brand names, enforced IP protection and consumer recognition from skilled use of digital platforms. The report offers examples that, according to the authors, demonstrate that coffee producers who have achieved these types of marketing gains, have benefited from higher prices.  What this report does not attempt to do, is offer a 'silver bullet' solution to the tyranny of the C price. Instead, it points towards business know-how, specifically marketing strategy, as the way that producers and exporters can move away from being price-takers.  

Ruth Ann Church - observing / teaching at a washing station.

This report describes and defines the broader marketing concepts that underpin arguments and recommendations made in the paper, "Understanding and Improving the Price-Quality Relationship in Rwanda's Coffee Sector" by Ruth Ann Church, October 2018. This paper is not focused on marketing strategies like ITC's is. Instead, this report focuses on Rwanda's challenges to overcome commodity coffee mentality. Church writes a short section 4 titled, "Finding Buyers of High-Quality Coffee," which offers marketing tactics to support the efforts of producers, exporters or the government, to gain traction in high-quality coffee that is not commodity-priced.

Let us know if you've read similar recent reports! Maybe you've seen other writers or researchers substantiating how marketing strategies have helped producers be able to say that they're no longer part of a commodity market.

WATCH THIS SPACE for upcoming announcements of Artisan Coffee Import's panel at SCA Boston - "East African Quality Innovation", April 14, 11:30 - 12:30am.

81. "Poverty Coffee" Is Not Attractive to Youth at Origin

April 5, 2018

Looking for a way out of poverty. Not planning to stay in it.

There is a lot of wringing hands about how to attract youth in the Coffeelands to want to grow coffee. Journalists, politicians, coffee roasters and buyers have become united in their alarm about the advanced age of the "average coffee farmer".

Rwanda = 51 years old (NAEB 2015 Census)
Kenya = 51 years old (Ngeywo, 2015)
Burundi = 47 - 67 years old is where 47% of the farmers fall (Recensement General Des Cafeiers, Edition 2006-2007)

The message is clear. The younger generation is not following their parents and grandparents into the coffee farming business. A recent report  from the International Coffee Organization on the sustainability of coffee in Africa states the problem plainly: "The average age of farmers is over 60 despite the continent being dominated by a huge number of young people. Indeed, the young and educated do not engage in coffee production due to the low returns."
(ICO, ICC-11-4-5, 2015).

In other words, "poverty coffee" (Artisan's choice of words) is not attractive to youth at origin. We can bring children and teenagers into the coffee fields and show them how coffee farming works. We can make it clear that new systems exist to test soils, accurately fertilize trees, rejuvenate trees, test coffee cherries and process coffee with more precision than was done in the past. But  the fact of the matter is, the industry cannot keep the attention of youth on coffee as long as they only see low returns to their investment compared to their other choices.

The coffee industry (of which Artisan is a part) needs to grow up and understand that some aspects of the Lewis "dual-sector" model of economic development are in evidence here. There is a labor transition happening between two sectors, the 'capitalist' sector (including services and manufacturing) and the 'subsistence' sector.  The fundamental assumption of the Lewis model describes what appears to be happening before our eyes: that surplus of unproductive labor (that would happily take a job as a coffee farmer in the past), is moving to 'capitalist' sectors in the capital cities. They are going to work in sectors with high enough productivity per person to be able to pay wages higher than the average a coffee farmer earns.
According to the Lewis model, attracting youth to coffee would mean improving the productivity (revenues earned) per employee in the coffee farming sector. The status quo seems to be to pay "sub $6.00" prices per KG green landed (or < $2.73/lb green landed), which probably means paying subsistence wages on the coffee farm. For example $1.00 per seven hour day. $1.00/day is not scandalous in terms of pure economics. It is an average, market-based wage today in many rural areas. But these rates are not accounting for the impending exit of laborers from the region. Rates today do not include the cost of replacing the ones who get up and grow coffee today. If prices do not increase, the outcome after  the "old guard" has retired, is unknown. According to the Lewis theory, the supply of labor will continue to be in surplus and available at low wages. But one already sees evidence that the surplus can disappear as countries develop. Rural wages have increased in some coffee-growing regions in Central America as labor, especially during  harvest, becomes scarce. The smallholder farmer income (working their own land, not someone else's) also needs to see increases, as opportunities for them and their children in the city become more and more accessible.

Quality coffee is grown with techniques that are more labor intensive, (e.g. pruning, mulching, hand-picking, etc.). So companies with supply chains dependent on high-quality, green Arabica coffee need to realize they are competing with vibrant digital, banking and manufacturing industries for the future. In those industries, youth are seeing young adults with attractive life-styles: phones, cars, a vacation once in awhile. And they're not believing they can get those things with what amounts to $1.00/day returns.

To attract youth who have these choices ahead of them, "coffee or computers?", it does not take a tremendous amount of analysis to figure out which project will help. Investing more in the price paid for green coffee will help. By paying above $6.00/KG for green landed coffee today, (and asking what of that amount is paid to the farmer), roasters can be more confident that they are contributing to a healthy future for the sector. There are similarities in education - paying for early childhood education avoids much higher costs later, and in medicine - paying for wellness visits avoids high-cost emergency treatments down the road.

As an industry, we need to do more than just cover rising labor costs in the coffeelands, begrudgingly and belatedly. We need to  get coffee into the forefront of the crowded "job fair" that young people are looking at today. When youth see that there are returns to investments in high quality coffee, they will be attracted. When the older adults around them see that there are profits to be earned with coffee, they will encourage their offspring to gain knowledge about coffee, not abandon it.

Sources include: Feed the Future Africa Great Lakes Coffee (AGLC) support program. Baseline survey was conducted 2015 - 2016 with 1024 farmer households, randomly selected from 4 coffee-production districts.