Tuesday, October 17, 2017

76. Tale of Two Coops: Insights on Determinants of Farmgate Price in Rwanda

Oct. 17, 2017

Rwanda is unique in many ways. Sometimes so unique, that even Rwandans are unable to clearly articulate how "their world" is different from other places in the coffee industry. The farm-gate price in Rwanda is called the "cherry price". Elsewhere in the world, coffee farmers understand that their price is largely determined by the New York "C", the price set daily at a commodity exchange in New York which has little to do with coffee farmers and a lot to do with speculators. In general, a good thing. Commodity trading provides transparency and easily referenced pricing. But a bad thing because, unfortunately, this market does not reflect true costs, especially for "specialty coffee". But let's not go there today. The point here is that this all-pervasive NY "C" price does NOT pervade directly to the farm level in Rwanda!

In Rwanda, the cherry price is determined by another price, the National Agricultural Export and Development Board (NAEB) floor price. It would be fair to say the NAEB floor price is influenced by the NY "C", but it is influenced by many other people, too.  Which people? People who have influence in coffee and politics in Kigali. Notice that definition does not sound like a definition of a "coffee farmer". And therein lies the controversy and challenging transition that is currently underway in Rwanda. The Rwandan cherry floor price determines the fate of 350,000 coffee farmers, and ultimately, the country's foreign exchange earnings, yet up until 2017, the "voice" of the farmer has been absent in its determination.

In the past year I was able to talk to two leaders of cooperatives in two different coffee production regions in Rwanda. The differences in their comments about what determines cherry price illustrates how and why a transition to including farmer "voice" in the politics that determine the NAEB floor price is so important to Rwanda's future. 

Cooperative A:“So many things influence coffee cherry price,” commented Jean Luc TWAKIRE (name changed), managing director of a well-established coffee cooperative in Rwanda. “Factors include whether a farmer is a cooperative member or not, the competitiveness of the region and the strategy of the cooperative itself. I’m willing to pay a high price, because I only buy high quality cherry. I need a high quality output.” Mr. TWAKIRE goes on to share specifics about the type of relationship he has with his buyers. He calls them “permanent” and willing to “reduce their profitability in order to help the cooperative in their sustainability.” In other words, one notices that the type of relationship the cooperative has with the coffee buyers is one critical variable in determining cherry price, on top of the others TWAKIRE mentioned. 
Bringing the coffee to get weighed at a collection site.
Where it counts: farmer record shows she has been paid exactly the NAEB floor price - 270 RWF/KG cherry until the floor price was adjusted down to 240 RWF.

Cooperative B: In a different area of Rwanda, the managing director of a different cooperative washing station, also well-established, we’ll call it “Cooperative B” has less “permanent” customers. The director, we’ll call him Theogene HABONIMANA, explains their pricing strategy this way, “we pay the floor price set by NAEB, keeping that first price low, and checking what the other washing stations will pay. Our price should be the same, not different.”  Then, at the end of the season they give the farmers a second payment based on the actual profits the cooperative received. “The second payment is an obligation.”

HABONIMANA and TWAKIRE’s descriptions illuminate how for many farmers, the factor most commonly cited globally as affecting coffee pricing, the NY “C” price, becomes almost irrelevant. Researchers on the Africa Great Lakes Coffee (AGLC) Support Program team have validated that for Rwanda’s 350,000 coffee farmers[1], the determinants of cherry price rest on four key factors:

The interesting point in TWAKIRE's comments (cooperative A), is the fact that for him, the NAEB floor price matters less than his relationships with his customers and the competition with other washing stations. Indeed, the AGLC research team found that while the NAEB floor price is the cherry price in regions where competition is weak (e.g. cooperative B's region), in regions where competition is strong and cooperatives have long-standing relationships with specialty coffee buyers, farmers receive prices around 33% above the floor price every year. "We're used to paying above the NAEB floor price," says TWAKIRE. "That happens every year."

What this means is that NAEB has an especially vital role to play. It is imperative that they continue to use data and evidence to inform decision-making about the floor price.  The data gathered by the AGLC team from a survey of 1024 coffee farmer households, represents, in many respects, "the farmer voice" that is missing at the negotiation table.  That data is time-limited, though. Therefore, NAEB must continue to find ways to keep the negotiations objective and fairly representing the farmers' interests, which in the end, are the interests of the country.

[1] NAEB, 2015 Coffee Census

Thursday, October 5, 2017

75. JDE Assessing the Power of Lean

Oct. 5, 2017
In the September 2017 Issue of Global Coffee Report, an exciting article appeared about a six year initiative Jacobs Douwe Egberts (JDE) created in Honduras. Click here for the article.  SIX years is a long commitment. Many USAID projects only last three to five years. Six years is enough to see the impact of Lean efforts across a large geographical region. Looking for clues as to whether the JDE - Cohonducafé Foundation project is a Lean project, a few can be found. The key one was this:

“We conducted value-chain analysis to identify what our priorities should be,” Project Manager Edgar Joel Castro explained, detailing how the team at Cohonducafé Foundation worked with staff at JDE to evaluate key indicators in the market and narrow down the project’s objectives.  A "value-chain analysis" that is well-done at a high level of the supply chain is an excellent tool to help link many "value stream analyses" once you start drilling down.

The rationale for the strategic analysis couldn't be clearer. "The industry that their grandfathers once knew and operated in has changed drastically in line with increasing global demand for the commodity, climate change, greater instance of pests and diseases and other economic factors," (GCR).

The key impact metric may sound small, "overall productivity has increased 25 percent" but if we assume this is across all 15,000 farms in the project, that is actually a very impressive bump to Honduras' 2016 production of 5.93 million 60 kg bags, (USDA’s FAS annual GAIN Report), which comes from 97,000 producers (Instituto Hondureño del Café report 2015/2016).

Another helpful illustration in the Honduras story is how the project united many players along the value-chain. One alone could not have achieved the same result -- even the "largest one with the most money." Here's how they describe the collaborative group:

Through the foundation’s connection with Cohonducafé, the largest exporter of coffee in Honduras, and partnership with JDE, the project gained access to the coffee companies’ extensive networks and superior logistics. “We had direct business relationships with more than 40,000 producers,” says Castro. “We believe that if they weren’t part of this, it would have been much more complicated.”
The foundation also has strategic alliances with 30 different organisations, from universities and municipalities to local and international NGOs.

This example of a large project, combined with examples from the small projects Artisan has lead in Rwanda and Burundi, should encourage other industry players to take Lean training seriously for their strategic supply chain efforts. Invest in the sustainability of quality coffee supply, start your value chain analysis now with help from Artisan Coffee Imports.