111. The Missing Piece in Cost of Production

 Sep. 2023 - Learning about the DIASCA Project

Rwandan coffee harvest - at what cost?

As some of the largest coffee companies in the world intensify their interest in ESG (Environment, Sustainability and Governance) goals, multi-stakeholder initiatives (MSIs) like the DIASCA project are stepping up to solve long-term issues. One of the thorniest data issues in sustainability is not just how to gather data to estimate cost of production (CoP) of coffee for a given nation, but how to replicate the same method on an annual, or other regular basis. For us at Artisan Coffee Imports, the issue of consistently repeating CoP estimates is "the missing piece" in almost every attempt to estimate CoP of coffee.

Field research is expensive.

The problem: Updating a COP estimate and replicating the estimation method on an annual, 2 year or even 5 year basis is incredibly important. The day a report comes out with an estimate of CoP, it is already aged, and soon will be so out-of-date it is barely useful. The largest cost component of CoP is labor. Labor rates are notorious for changing year to year. CoP is almost always converted from a local currency basis to USD/lb, so foreign exchange rate fluctutaion as probably the next biggest factor. In some countries, inputs like fertilizer are another large component of CoP, and as readers may know, chemical fertilizer costs have spiked up significantly over the past two years. In countnries like Rwanda where organic matter such as mulch is a major cost to farmers, costs have also risen exponentially. Five years ago a farmer could gather enough mulch in near-by fields. Nowadays, it's common for farmers to rent a truck and driver, travel to another district, pay a different farmer for the mulch and spend one or more days of their own time to make this transaction happen.

Potential Solution: The Committee on Sustainability Assessment (COSA) is the

DIASCA is a multi-stakeholder
initiative funded by GIZ.

technical workstream (TWS) leader for a new effort to develop a rapid CoP estimating method that can be adapted easily to almost all coffee-producing countries. Their efforts are one part of the larger project of the International Coffee Organization (ICO) to address living income. The larger project's acronym of DIASCA stands for Digital Integration of Agricultural Supply Chains Alliance. The purpose of DIASCA is to make digital traceability more efficient by helping all actors in the supply chain "speak the same language." To do this, COSA is proceeding with the careful and difficult work of facilitating parties in different countries and many different organizations to agree on the most important variables to measure, AND they are simultaneously testing new methods for obtaing metrics of those variables that will greatly reduce the cost of field research. 

Lars Kahnert, GIZ

Artisan Coffee Imports is proud to be participating in the roundtable discussions to develop the economic model and supporting metrics to produce a reliable and repeatable CoP estimate that will then be a key component of the DIASCA project's larger Living Income estimates. 

Indicator lists and flow-chart models are still in process! We can't share them with you today, but soon there will be early results to share. (Watch this space.) It is challenging and rewarding with colleagues from esteemed organiztions across the globe, COSA being one of them, as we work towards this important industry goal.

Daniel Mbithi, Kenya Coffee Exchange, 
gives insight on Kenya's project.