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 .

Monday, January 6, 2020

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!)

Wednesday, May 1, 2019

92. New Two-Tier Pricing and Quality Control at Kopakama

May 1, 2019
by Ruth Ann Church
The first of May is "Labor Day" in Rwanda - the day when workers, and good work ethics are celebrated. When Ruth Ann was visiting Kopakama on May 1, 2017, she witnessed an employee meeting where they voted on the "employee of the year" as part of the celebration.

This makes May 1 a good day to commemorate a historic shift in coffee policy that has happened this year - 2019, that will significantly benefit farmers, and coffee buyers, for years to come. Kopakama, as a single cooperative, decided to implement two-tier pricing at all of its 70 collection sites, and then the entire nation did!

Kopakama made the decision to shift from "one-price for all cherry" to a two-tier system back in August 2018, the "down season" in coffee in Rwanda. The cooperative's board of directors therefore had time to sensitize and inform the member community (area farmers) that this significant change in pricing and quality control was coming with the 2019 season.

NAEB letter recommending floating.
The National Agricultural Export Development Board (NAEB) sets policy and regulates the coffee industry across all of Rwanda. They issued a statement (see left) to all coffee industry stakeholders on February 28, 2019. In part 3, the letter recommends  that "all washing stations should implement the floating system."

At Kopakama, this means a four-step process.
1. Farmers arriving with cherry must HAND-SORT their cherry, separating out the good ones and bad ones.
2. The "good pile" of cherries is submerged in a large basin of water with a net. The floaters are skimmed off the top (these are light-weight, undesirable cherries), and added to the waste pile from step 1.
3. The "waste pile" is weighed.
4. The kilograms of waste are subtracted from the total kilograms delivered, which was taken at the very start of the process. The TWO WEIGHTS are recorded in different books, and TWO PRICES are paid: a high price for the dense good cherry, and a low price for the light-weight "floaters."

In this way, farmers who are implementing best practices during the growing season and during harvest (picking only the ripe, dense cherry) are rewarded. Those with less motivation or training quickly see the benefit of improving their practices so that next time they arrive at the collection site they can be paid more.
The importance of a QC step before the farmer is paid - from the slide Artisan presented at an SCA Boston lecture. 

Images of Kopakama's cherry floating process taking place in February 2019.

The floating practice is dependent on getting the two prices right. The "high price" must be "high enough".  Farmers who invest time to bring good cherry must walk away better than the farmers who get paid the "average price" for all cherry. (Otherwise farmers will avoid collection sites requiring floating and paying two prices.)






Monday, April 15, 2019

91. New Farmer Typology - a tool as valuable as the coffee flavor wheel

April 15, 2019
Dr. Celestin Gatarayiha, Head of Coffee Division, NAEB-Rwanda, takes in Dr. Clay's explanations of the new farmer typology.















A milestone event occurred April 12, at the SCA Boston. Dr. Dan Clay was present at SCA Boston to present one of the newest and most credible pieces of research on sustainable farm profitability and a new 'Farmer Typology' model. "Farmer Incentives and Value Chain Governance: Critical Elements to Sustainable Growth in Rwanda’s coffee sector" was presented during the scientific research poster session, 12 noon - 2pm on that Friday. Ruth Ann Church, co-author of the report during her days as a masters student at Michigan State University, was pleased to present alongside professor Clay. Clay has been studying coffee value chains for about 30 years, primarily utilizing applied field research in African countries. In coffee circles, he is most noted for leading the PEARL project, 2003 - 2008, in Rwanda, which launched the country, previously unknown to the gourmet coffee world, into the specialty coffee sector. The "Farmer Incentives" paper was published in the peer-reviewed journal, Journal of Rural Studies 63 (2018), p. 200-213.

Given the number of recent reports and panels discussing the issue of cost of production, coffee prices and farm profitability, this research is likely to be received with excitement across the globe.

Recent reports on profitability include: ICO document 124-6e, "Profitability of coffee farming in selected Latin American countries – interim report"; an SCA two-session panel on the "Future of Specialty Coffee", and at least two other panels on cost of production at SCA -- one from Food 4 Farmers and one from a team of MBAs at the University of Michigan. The ICO report and the panels often lament the lack of available and credible research with large sample-sizes on the topic of coffee smallholder profitability. These entities will welcome this new, peer-reviewed research with the largest single-country sample size of any report on the topic in the last 10 years, (n=1024 per country; both Rwanda and Burundi were surveyed, so total sample size = 2048.)

Not only is the research recent (based on 2015/2016 survey data) and robust, it has been vetted by the Rwandan government and found to be useful. They based significant policy decisions on the findings of this report. This fact is noted in the "Outcome in Rwanda" section of the poster. The section states:
The Rwandan coffee board (the National Agricultural Export Development Board, NAEB) used the data and analysis from this research to defend its move to raise the cherry floor price 70% in 2017. (Floor price of 150 Rwf/kg cherry in 2016 was raised to 264.) They were able to stand their ground against opposition from exporters, because of the legitimacy and independent nature of this analysis. The research underscored the voice of the farmer at the negotiation table.
This real-life outcome (a 70% price increase for 355,000 Rwandan coffee farmers in 2017) illustrates how data can be the critical, enabling difference to improve governance of the entire coffee value chain.  
"Farmer Incentives and Value Chain Governance" poster from SCA Scientific Poster Session. Image of the 48" x 36" poster.
Reviewers may wonder if the work can shed insights for coffee-growing geographies outside of Rwanda and Burundi, two small, land-locked central-African countries. Church maintains that the answer is "yes, the research offers a unique focus on differences in farmer motivation and capacity depending on farm size, and similar patterns can be observed in many countries and other value chains." The poster features the new "farmer typology" diagram that is ground-breaking for making something we've always known, suddenly visible and defined. It's like when the "coffee taster's flavor wheel" first came out. Cuppers everywhere knew those flavors, but an illustration and diagram of what "everyone knows" becomes an invaluable tool.
New Farmer Typology - hypothesized to be applicable in many countries, not just Rwanda and Burundi

The new "farmer typology" diagram presented in the poster at SCA is a similarly universally valuable tool because it illustrates capacity to invest versus incentives to invest by size of plantation in a low cherry price scenario.  Let's look first at the issue of incentives, as this is the aspect of coffee farming that seems to be recognized as important, but so far not analyzed in terms of differences across farm size. Farmers do not respond equally to price incentives. The typology shows how in a low cherry price scenario, the largest farmers neglect their coffee trees because of lack of motivation from market returns. This phenomena is now being documented across the industry in almost every trade magazine one picks up every month: C&CI, May 2019, pg. 43; SCA Magazine 25 Issue 8, Feb. 2019, pg. 013; Global Coffee Report, Mar/Apr 2019, pg. 21; Roast, May/June 2019, pg. 79.

Coffee Taster's Flavor Wheel
These publications, as well as the new "Farmer Investments" paper we are highlighting here, describe how large farmers neglect their coffee trees, their yield per tree goes down and their investments, meaning costs of production fall to extremely low levels. The typology goes on to show that, in contrast, the smallest farmers are not motivated by market prices. Their incentives are basic survival and they do not have other choices or means to generate cash. They produce as much coffee as they can every year out of necessity. In a sense, they over-invest their labor in their coffee-trees, which drives up costs. The Farmer Typology above illustrates this difference in incentives with the yellow curve, showing small farmers on the left with high incentives (despite low coffee prices) and large farmers (on the right) with low incentives.

However, high performance in agriculture requires that producers have the capacity not just the incentive to invest. Farmers must have the resources and abilities to invest in their coffee trees and at the same time be motivated to do so. One without the other will not have a positive resultCapacity is illustrated with the blue curve in the diagram. Too often today, those working on issues of coffee sustainability and improvement of farmer livelihoods are wasting resources, because these two curves are not yet well understood. If someone meets a few farmers who haven't learned 'climate smart' best practices, it's too often assumed that 'best practices training' is going to help all coffee farmers. When in fact, what we see from the typology, is that large farmers usually know the best practices (capacity is high on the right side of diagram). Resources need not be wasted on training them. What is missing for largeholders is the business incentive from higher prices. Take training dollars and invest them instead in higher prices and for large farmers, and productivity increases will appear.(1)

The typology shows however that at the small farm level (left side), farmer capacity is low and investments in various types of training, (nutrition, basic math, basic business and best practices), may lead to both livelihood improvement and productivity improvement. Organizations such as Sustainable Growers in Rwanda, for example, target a population of smallholder coffee farmers characterized by tiny farms, low education levels and almost no other choice for cash income besides coffee. Looking at the typology, one would guess that investing in training programs for these farmers, will help them invest their labor in better ways. That will increase productivity, regardless of what cherry price is paid. This perspective of, "we can help them earn more by teaching them how to increase yield" is common in coffee. The problem is, most of any nation's coffee, even in small countries like Rwanda and Burundi, is not produced by these small farmers. 57% of Rwanda's coffee trees belong to Rwanda's largest farmers. 

The typology may seem like common sense to coffee industry veterans who have seen the differences in farmer motivation before their own eyes. In a low cherry price scenario, the coffee veteran has observed A. the large farmer who has not hired labor to help harvest his trees for two years because "it's not worth it" and B. the smallholder farmer with a garden of trees who invests so much time and family effort in weeding, mulching, fertilizing, even paying neighbors to help with harvest, only to receive a tiny sum that doesn't begin to cover labor costs. Now, with the typology published in this report, we will have a tool to help us understand what we are seeing better - placing it in context with other scenarios we've seen. Like the coffee flavor wheel, it is a tool that can help the entire industry understand its business better.

(1)A 22% productivity increase was documented in the Feed the Future Africa Great Lakes Coffee support project (award number: AID-OAA-LA-15-00006), after cherry prices increased 70% in 2017 vs 2016. Contact Ruth Ann Church for a copy of her presentation at SCA Expo 2018, "Farm Profitability: Impact of Best Practices."
L: Ruth Ann Church, co-author and now an M.S. in Community Sustainability; R: Dr. Dan Clay, lead author, professor and Director, Global Programs in Sustainable Agri-food Systems, Michigan State University 


Saturday, February 2, 2019

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.