Sunday, September 25, 2022

107. Variation in coffee cherry prices paid in Rwanda

Artisan tracks cherry prices in Rwanda carefully and has implemented a number of innovative contracting and pricing practices. Recently, we have been excited by new developments that seem to be a mix of market forces and new government pricing philosophy. Together they are playing a positive role to improve incentives for  farmers to invest in coffee.

Evidence shows that micro-markets developed in 2021, and cherry price disparities of as much as 180 Rwf (US$ 0.18) existed at any given point in time, (author’s data, see Table 1 below). This finding is based on Artisan’s convenience sample of 14 farmer interviews conducted in four districts post-season 2021. For example, Artisan interviewed four Ejo Heza farmers in the south of Rutsiro district and documented prices of 250–360 Rwf/kg cherry, (a difference of ~ US$ 0.11 per kg cherry), which is surprising considering these farmers belong to the same co-operative. Through interviews with female farmers in other districts of Rwanda, prices were found to average 310 Rwf in one area (Karongi), 340 Rwf in another area (Rusizi), 400 Rwf in central Rutsiro, and peaked at 430 Rwf in Gakenke, (see Table 1). The difference between the highest (430 Rwf) and the lowest (250 Rwf) is 180 Rwf (US$ 0.18).

Table 1: Anecdotal evidence: variability in cherry prices across micro-markets for female farmers, 2021 season, Rwanda

We highlight these intra-country price variations to demonstrate that micro-markets exist in Rwanda and offer anecdotal evidence of markets at work in Rwanda’s coffee sector. A government floor price, such as Rwanda's farmgate price, plays a welcome role in protecting farmers against predatory prices. Price variability above a farmgate or floor price is welcome in that it shows how markets are regulating supply and demand across Rwanda’s micro-markets. Micro-markets are defined by different land ownership patterns and variances in soil fertility, elevation, competition (density of washing stations), etc. The variables impacting price are many, and market-based prices are good at adjusting to fluctuations in these forces in ways that reward producers.

Ideally, NAEB officials will leverage the buoyant price environment and continue to allow variable prices among Rwanda's micro-markets. We hope they can entrench polices and activities which align farmer motivation with national production and global product differentiation goals.

 



[1] 2021 average RWF USD exchange rate of 1001.

Saturday, January 15, 2022

106. Two New Research Papers on Rwanda Coffee Supply Chain

Two new papers from lead author Andrew Gerard address current issues in Rwanda that are representative of the complexities faced in coffee supply chains across the world. Exporter business approaches and government regulations on the local market for cherry are long-standing challenges for coffee buyers to understand. These papers give a helpful, objective review through an academic lens and offer new perspectives on Rwanda's situation specifically.

Gerard brings personal passion and first-hand experience to the research presented. He was a member of the influential Africa Great Lakes Coffee coffee project, 2015 - 2018, which was funded by USAID's Feed the Future campaign.

1. Paper: "Relational contracts and value chain governance: exporter approaches to overcoming transaction costs in Rwanda’s coffee sector" [https://www.emerald.com/insight/2044-0839.htm ] plugs a gap in the literature that has been personally frustrating to us at Artisan in our efforts to understand Rwanda's issues. For the first time that we are aware, Gerard has focused on the exporter landscape of the country, classified them into three groups and described their differences: foreign-owned private exporters, Rwandan-owned private exporters and Rwandan cooperatively-owned exporters. The findings include insights that multi-national exporters did not find competition to be a major problem, instead, and in contrast to Rwandan exporters, high cherry prices were most frequently mentioned as their biggest concern. Relative to other respondents, foreign exporters claimed that Rwanda's zoning policy negatively impacted business. "Most said that there is high competition and side-selling, implying that they believe zoning has been unsuccessful."

2. Paper: "Do government zoning policies improve buyer-farmer relationships? Evidence from Rwanda’s coffee sector"
Highlights:
Rwanda’s government implemented a zoning policy in its coffee industry.
•Mixed methods are used to analyze how zoning affected buyer-farmer relationships.
•Buyers were more likely to give farmers bonuses where zoning was well-implemented.
•We do not find evidence that zoning increased coffee farmer investment.
•Buyers believed that zoning improved their relationships with farmers.
  • For CWSs that did not credit zoning or requests from government for their decisions to provide second payments, the primary reason for providing them was wanting to motivate farmers to invest in their coffee. Additional farmer investment would allow for greater productivity and more coffee for CWSs, which is helpful because they cannot purchase coffee from outside of their zones. Other reasons for providing second payments included profit sharing being an obligation of cooperatives and provision of second payments being expected in their region.
Both papers are originally part of Gerard's Ph.D. dissertation for the department of Community Sustainability at Michigan State University.

[We apologize, we are unable to make the full-text of these papers available on our website/blog. If you have an account with Elsevier or Emerald Insight, you will be able to find these papers. If you do not have an account, you will have to pay for access. Use the links below.]

Monday, October 25, 2021

105. Artisan at the Scientific Poster Session at Expo

At SCA Expo New Orleans Ruth Ann shared results from research on cooperatives in Rwanda. The research was published in the 2019 paper published in the peer-reviewed journal Food Security, vol. 11, July 2019, 967 979. https://doi.org/10.1007/s12571-019-00952-9
Guests view Ruth Ann's poster at Expo.

The research questions were:

1.Does cooperative membership increase adoption of best practices and coffee productivity?

2.Do cooperatives improve farm household welfare?

Results included:

Estimates of average treatment effects on the treated (ATT) from the nearest neighbor propensity score matching method (PSM) estimator suggests that cooperative membership significantly improves outcomes. Our results in Tables 5 show that cooperative members, compared to farmers who are not coop members:

1.Have higher adoption of best practices (.49 index points higher)

2.Have 20% higher productivity(KG cherry/tree)

3.Received 18% more coffee income per tree than non-members.

4.Obtain 10% more income from coffee than non-members, as a percentage of total income

5.Lower cost of production by 24%.







Tuesday, June 1, 2021

104. Lean at Origin for Producer Groups in East Africa

Can formal education improve the management practices of firms?  Literature on the impact of business training offers mixed evidence of its effectiveness, depending on the educational settings and targeted population (McKenzie and Woodruff 2012). At Artisan, we believe there is growing evidence of effective executive education courses on the African continent. Our Lean At Origin courses are a good example of the power of executive training for the coffee sector. 

According to VoxDev, a development economics platform:

"Low-cost interventions such as executive education courses can improve firms’ financial practices and decision making, and trigger economic development."

In a recent paper (Custodio et al. 2020), a randomized controlled trial (RCT) was used to estimate the impact of a financial education program for top executives at medium-sized and large firms in Mozambique. The authors find that this intervention leads to significant changes in short-term financial policies and investment. They show that upon receiving financial education, managers reduce accounts receivable and inventories, which generates an increase in free cash flows used to finance long-term investments. These changes improve the performance of the treated firms. 

Artisan Coffee Imports has been bringing executive education style courses in Lean management principles to producer organizations since 2016. The "Lean at Origin" curriculum was piloted with cooperatives in Rwanda and Burundi in 2016-2017 as part of an Export Promotion grant from Trademark East Africa. From there, founder Ruth Ann Church continued to roll out the program to private producing companies in Rwanda and Burundi. In 2019, to two cooperatives on the island of Idjwi in D.R. Congo received the training thanks to a grant from the Polus Foundation.

Adoption of the principles was high, as most participants readily saw the application of tools for the elimination of waste to their work in coffee and also to their every day lives. During the leadership training at Kopakama, Terese UWIMANA, president of the Ejo Heza women's group stated, "the way of making things clean and organized is going to help us at home and in the community, too!"


Lean at Origin curriculum typically starts with a two-day training for the organizations' leadership. In groups not larger than 18 at a time, participants engage primarily in learning through in hands-on activities and group discussion. Lectures with powerpoint slides (given through simultaneous English-Kinyarwanda translation) are kept brief and limited. Principles of delegation, the importance of metrics and customer focus are emphasized with leadership.

Supervisors are included in the second two days of instruction, where the emphasis is on quality improvement projects called "Kaizen" projects. The goal is to give the participants a basic understanding of how to visualize and improve a process utilizing teamwork and brainstorming.

A key finale event is the "Lean Celebration Day" where community leaders and family members are invited to the cooperative to hear brief presentations by each of the Kaizen groups about the improvements they have made. After the presentations, food, music including drums, drinks and traditional dancing are part of the "Lean Party"!

Impact - the story of Gervias KAYITARE:

With each training a "Lean Champion" is identified. The criteria to be selected is the individual's grasp of and ability to communicate the lean principles. In 2016, by the end of four days of training at Kopakama, it was clear that Gervais KAYITARE comprehended the opportunities Lean was offering his cooperative - especially KAIZEN. In 2017 Gervais embraced advanced sessions on Value Stream Mapping and allowed deeper sessions for the team at the dry mill on Lean tools for production scheduling. In 2018, Gervais helped the farmer cooperative implement the largest change in quality control in its history with the introduction of a floating requirement at all 35 collection sites. In 2019, Gervais had moved into the Executive Director role at the coop. In that role he encouraged new processes to improve soil rejuvenation and the floatation process at collection sites.

In 2020, Gervais was again at the cutting edge, implementing a third cherry price in addition to the government-mandated two prices. This was in keeping with the Lean principle to eliminate waste and defects at the point of purchasing raw material. They would pay a "special" price for "special" coffee that met strict and well-communicated quality criteria: delivery before 12 noon to the collection site and no-compromises hand-sorting. With the "special" criteria to get only the reddest coffee cherry, Kopakama was on its way to lower costs and improve quality at the same time -- the hallmark of Lean. 

This step into new territory of paying a quality premium at the time of the farmgate transaction brought unwanted attention and stress for Gervais and his cooperative. Neighboring cooperatives called the "special price" unfair and unlawful. Gervais courageously held his ground, convincing the cooperative president and the board, that their position was indisputably beneficial to the farmers and the cooperative, and could benefit the entire country if allowed to continue.

In 2021, Rwanda began to see coffee processing organizations across the country paying "special" prices. Thousands of farmers have benefited from the new appreciation for the value they bring now that "elimination of waste" is beginning to take hold in Rwanda's coffee value stream.

Research on the value of executive education:

Differences in productivity and profitability across firms can be large and persistent (Syverson 2004, Syverson 2011, Foster et al. 2008). Management practices as well as development levels across countries contribute to explaining these differences (e.g. Bloom and Van Reenen 2007, Bloom and Van Reenen 2011, Bloom et al. 2013). Analyses of the role of management practices in explaining firm-level productivity and profitability focus on a variety of topics including operational management practices and financial management practices. Corporate policies in these areas might be particularly important in contexts where financial and operational frictions are severe, such as in developing economies. 

Watch a video 'Introduction to Lean' on Youtube with Ruth Ann Church presenting basic Lean principles to groups of coffee producers across several continents. Click here.

Read about a 2015 Lean training for a Kenyan peanutbutter firm sponsored by the United Nations International Trade Centre (ITC): Click here.

Read about a team of European students who taught Lean courses in the East African Community, 2019-2020, via an ITC program called MARKUP.

Read more about executive education in Lean offered throughout the African continent: https://www.lean.org.za/

Read more about research on interventions focused on financial management practices:  https://voxdev.org/topic/firms-trade/how-financial-education-managers-can-help-improve-firm-practices-evidence-mozambique









Tuesday, May 25, 2021

103. Biosphere Coffee in Ethiopia Helps Protect the Planet


Since we typically hear about how devastating the effects of climate change are on coffee farms and on coffee farmers, it was exciting to learn about the opposite case - a coffee farm that is helping to reduce carbon emissions, while adapting to on-going changes in the environment. In an area called a "biosphere" in Ethiopia, several coffee farms, including those owned by Diamond Enterprises, are located in the core and buffer zones of the Kaffa Forest UNESCO biosphere.

What is a Biosphere and why are they so cool? Biosphere reserves are like special national parks. In some ways they are international parks because they are created/certified by the United Nations Educational Scientific and Cultural Organization (UNESCO). They are designed to be 'learning places for sustainable development.' They are sites for testing interdisciplinary approaches to understanding and managing changes and interactions between social and ecological systems, including climate change and management of biodiversity. 

Map of the Kaffa Forest Biosphere in Ethiopia

Dehab Mesfin Bitewlign
has been the managing director of Diamond since 2014, exporting her natural and washed fine Ethiopian coffee first to Germany, then elsewhere in Europe, and now, for the first time, her fantastic naturals (Gr. 1 and 2) will be entering the USA via Artisan Coffee Imports. Artisan was excited, like every buyer, first by the taste in the cup. It scored 87.5, offering classic Kaffa Forest natural fruit-forward, blueberry, sugar, almond flavors and a clean, crisp finish. Click here to go to Artisan's website and get more info on the coffee. 

Dehab Bitewlign (right) at the IWCA Cupping, Expo 2019 in Boston.

The story of the farm's special location became clearer as conversations on the coffee's details continued. Turns out her coffee has an environmental triple benefit! We know from other research that coffee, as a tree crop, brings environmental advantages that other crops can't offer. Dehab's farm, like many farms in Ethiopia, magnifies coffee's carbon-reduction benefits because it is grown under a canopy of large trees. Dehab confirmed with government offices that her farms are within the Kaffa Forest protected area, which means her carefully regulated environmental practices create a third benefit of supporting the biosphere!

Entering a forest coffee plantation in Ethiopia

The triple environmental benefit of Dehab's Diamond coffee:

  1. Environmental benefits of coffee as a tree crop 
  2. Ecological advantages of forest coffee in Ethiopia
  3. Climate change and biodiversity benefits of operating within a biosphere

To learn more about the Kaffa Forest biosphere, click here.

To learn more about the 714 biosphere reserves in 129 countries - all of which belong to the World Network of Biosphere Reserves, click here.


Monday, February 22, 2021

102. Rainforest Alliance' Living Wage Benchmarks Report

 Feb. 22, 2021

"Read the fine print and you might find a gold mine!"

Those were my thoughts last week after receiving a seemingly administrative email from Rainforest Alliance to Partners, (my company Artisan Coffee Imports is one of them). The email was sharing updates to the Rainforest/UTZ license agreement. As I skimmed through the long text with fine print, the words "Living Income" caught my eye, then a link to this version 1.1 document, "Annex S10: Living Wage Benchmarks Per Country."  A goldmine!

I checked with some Rainforest contacts, and indeed, this report is the end result of years of collaboration with the Global Living Wage Coalition (GLWC). Rainforest has also worked with the Living Income Community of Practice (LICP), two pre-competitive groups focused on improving living wages for smallholder farmers of commodities, including coffee farmers.

The GLWC and LICP both utilize a seminal 2017 Manual by Richard Anker & Martha Anker on living wage reference values, "Living wages around the world: Manual for measurement." The manual is an open-access document with 20 chapters, and each chapter can be downloaded as a .pdf. To do this for 29 countries is clearly a ton of work, and Rainforest and the GLWC coalition have done this for us - that is the goldmine!

As the image to the left shows, the Rainforest document gives partners a simple table with 52 countries listed alphabetically, (we only show the first 25 lines here). For many of these countries, it only says "applicable wage", which means they don't have the benchmark for this country calculated yet. But for 29 countries on the list, including many of the prominent coffee producing countries, a benchmark monthly gross wage in local currency is given. If such a list exists elsewhere, I haven't seen it.

How can this be used? Now as a coffee buyer, I can ask my supplier what is the price the farmer is paid in local currency for his/her coffee product (parchment or cherry), and I will understand a lot more about how much coffee is really helping this individual and their family achieve a sustainable livelihood. Or I can ask how much the workers at the washing station, or the pickers on the estate are paid, and again, understand whether they have a shot at living off of those wages. For example, the living wage benchmark for Rwanda in the table is RWF 147,111 p. month. I know that in some areas rural workers are paid RWF 1,000 or 1,500 per day. Clearly, even working 30 days a month is not going to get this rural worker even close to a living wage. Something has got to change.

Of course, there are limitations to these numbers, and in the document Rainforest directs one to details on the methodology, (click here) and how to use the Reference Values (click here). The biggest cautions I note to myself are:
  • these are national averages. Even small countries like Rwanda, can have vast differences between what is a living wage in one area vs. another, especially rural vs. urban wages span a wide spectrum. In large countries, like Kenya or Ethiopia, even rural wages will have a broad range.
  • these are not commodity specific. Groups like LICP are working on commodity specific living income estimates, so that eventually we can understand what is relevant for a coffee farmer vs. a cocoa or rice farmer.
Regarding the use of these benchmarks within the Rainforest standard, there are important things to note also:
  • To uphold the standard, a buyer must assess wages against the living wage and make improvements towards the living wage, but it doesn’t require that you pay the living wage. 
  • The Rainforest standard, as it is today, applies to workers on individual estates, workers on large farms within a group, and workers in group management facilities (the office secretary and maybe the workers at a group-operated wet mill), but not the smallholders themselves nor the workers that they hire. 




Tuesday, February 2, 2021

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.

  • 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.