Thursday, July 17, 2014

13. Sustainability with a Market Focus = Resiliency

July 17, 2014

Chad Trewick is a coffee industry veteran, who among his many experiences, can also say he helped one of the U.S.'s largest retail coffee chains commit to sourcing 100% certified coffee. Chad helped Caribou Coffee (now owned by Peet's) to convert to sourcing 100% of their coffee from sustainability label, Rainforest Alliance.

In a thoughtful article, Trewick recently wrote in detail about the need for the coffee industry to embrace more sophistication in terms of understanding production costs and utilizing finance tools like hedging. Here's the link:

For me, Trewick's comments reflect the 'coming of age' of many people in specialty coffee. There have always been those in the coffee industry who understand the importance of production economics and financial trading tools like hedging. Nestle, P&G and Kraft no doubt have decades of data and experience in these areas. But these companies are considered the 'old boys' and specialty coffee, as it came on the scene in the 1990s, has a lot of individuals who think of themselves as trading coffee in a new and different way..

I think part of what Chad is saying is, while specialty coffee can be different (for example, 100% certified Rainforest Alliance), certain market fundamentals are still the same.

Here are some of the quotes from Chad's piece that I appreciate the most:

[We have] relatively little understanding of the true economics of coffee production...we lack critical information, making it seem impossible to pay a price based on production economics that would ensure an ongoing supply of green coffee and support the livelihoods at the start of our supply chain.

...without accurate information on which to base important business-guiding decisions, the industry’s purchasing behaviors have struggled to evolve.

So, what do we do? We need to pursue two simultaneous strategies.
1. Prioritize the gathering of information about coffee production economics. We need a meaningful and validated study of the economics of coffee production coming from various key origins and, further, the regions within those origins. [Certainly Trewick means to say "studies" not "study", as one study cannot suffice.]

2. Use financial hedging tools to help manage the increasing volatility of the green coffee market.
And... use what tools we can (including financial literacy training for farmers) to create more economic resilience.

The angle Chad takes on all this praise for the value of economic research and financial managment tools is that these approaches will be more long-lasting, more enduring, more sustainable, than charity. Trewick's words again: "there is much more we can do to improve the economic resilience of our entire value chain by using the tools the market has to offer."

"Here, here!" say I, and I believe, many coffee farmers throughout the world would agree.