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.